The recent improvement in Indian banks’ bad loan numbers does not reflect the underlying stress on the incomes and cash flows of borrowers affected by Covid19, rating agency ICRA said on Wednesday. and policies such as a moratorium on loan repayments, suspension of asset classification, and liquidity granted to borrowers under the Emergency Credit Guarantee Program.
“With the non-performing loan book remaining high, the second wave could push some of these borrowers to NPAs,” the agency noted.
The quality of the banks’ assets surprised with a decline in the reported gross default rate of 7.6% and the net default rate of 2.5% as of the end of March 2021, compared to 8.60% and 3.0% as of March 31, 2020
fresh NPA generation was also reduced to Rs. 2.6 crore lakh in FY 2021 compared to Rs. Rs 3.7 crore lakh in FY 2020.
The Reserve Bank of India recently extended its retail loan and MSME restructuring program to September 30, 2021, and recently the Indian government also increased funding of ECLGS to Rs. Rs 4.5 million lakh of Rs. Rs 3.0 crore lakh budgeted at the time of the first wave. Although this is likely to increase borrowers’ indebtedness, it could temporarily ease the pressure on liquidity to overcome the crisis triggered by the second wave.
“In the absence of stagnation in asset classification, we expect higher new NPA generation, but we also expect recoveries and appreciations to improve in FY2022,” noted ICRA. ICRA expects credit growth of 7.38.3% in FY 2022 (5.5% in FY 2021), GNPA and NNPA are expected to grow 6.97.1% and 1.92.0% respectively by March 31, 2022 sink.
“Within the sector, the change has been remarkable for public sector banks reporting profits after five consecutive years of losses, and with NNPAs at their lowest levels in six years, ICRA expects public sector banks to continue to be profitable,” said Anil Gupta. , Vice President of Financial Sector Ratings, says ICRA Ratings.