The recent improvement in the bad loan numbers of Indian banks does not reflect the underlying stress on the income and cash-flows of the borrowers impacted because of Covid-19, rating agency
said on Wednesday. The agency also said that the stress has been masked by various regulatory and policy measures such as moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under Emergency Credit Line Guarantee Scheme.
“As the overdue loan book continues to remain at elevated levels, the second wave could push some of these borrowers into NPAs,” the agency noted.
The asset quality of banks surprised positively with decline in reported gross non-performing loan ratio at 7.6% and net NPA ratio at 2.5% at the end of March 2021. This was against 8.60% and 3.0% respectively as on March 31, 2020
Fresh NPA generation also declined to Rs. 2.6 lakh crore in FY2021 compared to Rs. 3.7 lakh crore in FY2020.
recently extended the restructuring scheme for retail and MSME loans till September 30, 2021 and recently the Government of India also upsized the ECLGS funding to Rs. 4.5 lakh crore from Rs. 3.0 lakh crore budgeted at time of first wave.
While this is likely to increase the indebtedness of the borrowers, it could provide temporary liquidity relief to tide over the crisis induced by second wave.
“In absence of standstill on asset classification, we expect the fresh NPAs generation to be higher, however we also expect the recoveries and upgrades to improve in FY2022,” ICRA noted.
ICRA expects credit growth of 7.3-8.3% in FY2022 (5.5% in FY2021), GNPAs and NNPAs are expected to decline to 6.9-7.1% and 1.9-2.0% respectively by March 31, 2022.
“Within the sector, the turnaround was remarkable for public sector banks which reported profits after five consecutive years of losses and with NNPAs at lowest levels seen over last six years, ICRA expects the public sector banks to remain profitable going forward,” said Anil Gupta, Vice President – Financial Sector Ratings, ICRA Ratings says.Internet Explorer Channel Network