>Retail Banks (MERRILL LYNCH)

● Retail to be key driver for NPL’s: CRISIL
We hosted a conference call with Mr. Tarun Bhatia, Head- Financial Sector Ratings, CRISIL, India’s leading credit rating agency, to have a perspective of the asset quality issues in India. CRISIL expects NPLs to rise sharply through FY10- 11 and reach 4.5%-5.0% of loans by FY11 from 2.3% in FY08. However, this incl. loans that may be restructured. This compared with BAS-ML est. of around 4% for NPLs and +6% (incl. restructured). As per CRISIL, retail is the key driver (pegged at around 5%); with corporate NPLs at 3.5% by FY11.

● Retail NPLs: CVs; lower end mortgage to hurt
As per CRISIL, retail NPL formation could begin to peak around end of FY10; with retail NPLs rising to about 5% by FY11. Sectors that could see more pain could be CVs and smaller mortgages, especially loans of Rs1.5mn for most large HFCs. 10% of home loans could see EMI >60% of monthly salary (per CRISIL).

● Corporate: SME to be a problem area
Within Corporate segment, CRISIL expects NPLs to come primarily from SME, impacted by export cycle (textiles, gems and jewelry, auto anc.). However, it was fairly sanguine on corporate and infra. loans. Gross NPLs in corporate segment forecast to rise to 2.6% (FY10) and 3.5% by FY11.

To see full report: RETAIL BANKS