Bank loans

Big borrowers get a bigger share of bank loans as the economy recovers

Bombay : The share of the top 100 borrowers in banks’ overall loan book and bad debt increased in FY22 as a pick-up in industrial activity led to increased borrowing in the second half of the fiscal year , according to data released by the Reserve Bank of India.

RBI defines a large borrower as a borrower who has global fund-based and non-fund-based exposure of 5 crore and more from banks. The share of these top 100 borrowers, a subset of all major borrowers in the system, in overall bank credit stood at 17.1% as of March 31, up 50 basis points (bps) from the September 30, according to data published in the Financial Stability Report on Thursday.

Analysts didn’t seem overly concerned about the rise in the share of the top 100 borrowers from a risk perspective and said business credit growth had been largely subdued over the past two years, only picking up later. in FY22. Indeed, as of March 31, 2020, the top 100 borrowers accounted for 17.5% of gross advances, above current levels.

“Our assessment is that large corporate capital spending has been subdued in the recent past, which has led to lower credit growth in this segment, although we have started to see a recovery from the second half of the year. of FY22. Within the corporate segment, large corporates experienced relatively higher credit growth, as evidenced by the share of the top 100 corporates increasing slightly,” said Krishnan Sitaraman, Senior Director and Deputy Director of ratings, Crisil Ratings Ltd.

At the same time, a slight increase in the proportion of the top 100 borrowers does not lead to a significant increase in credit risk for banks, since the overall credit profiles of companies have shown an improving trend over the past few years. years with a reduction in debt, he said.

The data showed that the top 100 borrowers accounted for 6.9% of banks’ total bad debts as of March 31.

“If I look at the number of non-performing assets (NPAs) for the top 100 companies, the slight increase in that in the second half of FY22 can be attributed to a few stressed loans sliding into NPAs, which which was not unexpected. Overall, NPAs for the banking system as a whole as well as the corporate segment are expected to decline in FY23,” Sitaraman said.

That said, the share of all large borrowers in bank lending has declined in recent years, a trend which RBI says indicates a reduction in credit concentration and a diversification of borrowers. Their share in banks’ total NPLs moderated slightly to 62.3% in the second half of 2021-22 and remained well below 75.6%, its September 2020 level.

“Their Special Mention Account (SMA)-2 loans and NPAs also declined during the third and fourth quarters of 2021-22, although the continued increase in their SMA-0 and SMA-1 loans could potentially cause tensions in the future,” RBI said. , referring to all major borrowers.

Banks categorize borrowers into special mention accounts based on how late they are in repayment. Special mention counts-0 (SMA-0) loans whose repayment delay is between one and 30 days, SMA-1 between 31 and 60 days and SMA-2 between 61 and 90 days. The asset becomes non-performing (NPA) after 90 days of delay.

Experts estimate that once the National Asset Reconstruction Company Ltd (NARCL) resumes approximately 80,000 crores of old large corporate NPAs, bad debt ratios for banks will decline. Meanwhile, as failing banks’ operations unfold at a slow pace, lenders have already resolved about 20% of assets originally slated for transfer in two tranches, Mint reported on May 13. Almost 40,000 crore of bad debts have been resolved since the first announcement.

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