Public sector banks (PSBs) are likely to report a lower fresh slippage ratio than private banks in the fiscal year 2024-25, experts suggest. The term “slippages” refers to the addition of new bad loans in a given year.
According to the banking outlook for FY25 by domestic rating agency ICRA, PSBs are projected to record a fresh slippage ratio of 1.5% in FY25, while private banks are expected to have a ratio of 2.2%. This trend continues from FY24 when PSBs reported a fresh slippage ratio of 1.3%, lower than the 2% reported by private banks.
The difference in performance is attributed to the composition of loan portfolios. Private banks have a higher proportion of retail unsecured credit card and personal loans, as well as exposure to micro, small, and medium enterprises (MSMEs). In contrast, PSBs have a greater exposure to corporate loans, a sector that has been performing well.
Strong asset quality
Analysts note a strong asset quality cycle in the corporate sector in recent years, with more credit ratings upgrades than downgrades. Despite expecting PSBs to maintain a lower fresh slippage ratio than private lenders in FY25, ICRA forecasts that PSBs’ overall Gross Non-Performing Asset (GNPA) ratio will be slightly higher at 2.3% by March 2025, compared to 2.1% for private banks.
They highlight improvements in loan underwriting processes and enhanced monitoring of loan performance. Strict conditions are now imposed on corporate loan disbursements, such as requiring a higher percentage of land acquisition before releasing funds for construction projects. Banks are also leveraging digital platforms to monitor cash flows and gather information for better risk assessment.
PSBs are closely monitoring both retail and corporate loan performance, with increased scrutiny as accounts move into special mention account (SMA) categories. Digital sanctioning of retail loans up to Rs 5 crore through mobile applications provides lenders with greater visibility into borrower repayment trends. These measures aim to strengthen asset quality and mitigate risks in the banking sector.
