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Crisil Ratings in its latest report has said that gross non-performing assets (GNPAs) of banks - a key indicator of asset quality - is expected to improve 90 basis points (bps) to 5% this fiscal on-year (FY23), and another 100 bps to a decadal low of 4% by March 31, 2024 (FY24), riding on post-pandemic economic recovery and higher credit growth.

It stated the asset quality of the banking sector will also benefit from the proposed sale of NPAs to the National Asset Reconstruction Company (NARCL). That said, not all segments will perform equally well. The biggest improvement will be in the corporate segment, where gross NPAs is seen falling below 2% next fiscal from a peak of 16% as on March 31, 2018.

However, it said that all is not well on the dud asset front, and banking system's exposures to the Micro, Small and Medium Enterprises (MSME) sector is a worry. Gross NPA in the MSME segment, which suffered the most during Covid pandemic, may rise to 10-11 per cent by March 2024 from 9.3 per cent as on March 31, 2022.