WITH a number of large banks and non-bank financial firms facing the new challenges posed by the second wave of Covid, bad debts are expected to peak again as increasing tension in the sectors begins to impact the ability to repayment of borrowers.
Analysts estimate that non-performing assets (NPAs) will fall by just under 8% in the previous fiscal year – aided by restructuring, write-offs and regulatory eases, including a moratorium on loans – at 13-15% in 2021-2022. .
NBFCs and microfinance institutions (MFIs) report a sharp increase in stressed assets. “Small entrepreneurs operating in segments such as lounges and restaurants, taxi operators and traders / traders in non-core categories have been hit hard, and there has been no specific income support for these groups. targets. There has been a dramatic increase in APNs in this category, ”said a senior private sector banker, speaking to The Indian Express on condition of anonymity.
“As revenues haven’t been restored for over a year now, we have no choice but to do some major haircuts and write-offs,” the banker said.
Bandhan Bank, for example, reported an 80 percent year-over-year drop to Rs 103.03 crore in net profit for the quarter ended March due to additional APM provisions. The lender, which focuses on loans to microenterprises, saw its gross ANP as a percentage of total loans increase by 533 basis points to 6.81 percent in the fourth quarter of FY21, from 1.48 percent in the fourth quarter of fiscal 20.
Bajaj Finance, in its recent mid-quarter update, estimated first and second quarter NPAs to be higher, as lockdowns from April to May affected asset quality. “The second wave caused a marginal increase in EMI rebound rates in the first quarter of fiscal 22 compared to the fourth quarter of fiscal 21. Forward flows on overdue positions were higher due to constraints on collections amid strict lockdowns in most parts of India. As a result, the company estimates its first and second quarter gross postcode and net postcode to be higher, ”she said in a filed on the stock market on June 4.
In its last notes to the financial accounts of June 4, the Punjab National Bank (PNB) said: “The extent to which the Covid-19 pandemic will impact the bank’s results will depend on future developments, which are very uncertain. , including among others, the success of the vaccination campaign. The main challenges identified for the bank would arise from the erosion of cash flows and the lengthening of working capital cycles. “
Tourism, hospitality, restaurants, trade fairs, aviation, construction, textiles and high-contact services are among the most affected segments. Care Ratings predicted that NPAs would represent 7.3% (Rs 7.93 lakh crore) of advances in March 2021, up from 8.5% (Rs 8.86 lakh crore) in March 2020. This is expected to cross double digits and reach 15% in 2021-2022, according to experts.
The Reserve Bank of India has also warned of the possibility of an increase in bad loans to 13.5% by September 2021, up from 7.5% in September 2020. This is equivalent to Rs 14.6 lakh crore of total bank credit of Rs 108.33 lakh crore.
“It is difficult to quantify given the moratorium and the various schemes of the banks, but assets under pressure are estimated in double digits (13 to 15%)”, said Tarun Bhatia, managing director and head of Business Intelligence and Investigations, Kroll. South Asia.
“You have to see how companies that have paid part of their down payments (maybe 1 or 2) are ranked compared to those that have opted for a moratorium. In addition, because of the second wave, a significant proportion of those who opted for the moratorium would continue to struggle, ”he said.
“The ability of banks and NBFCs to physically collect contributions in today’s environment may therefore be limited even though borrowers are able to make payments. Given the loss of income or lower income, repayment of unsecured loans may not be a high priority for many borrowers, ”said Ramya A Muraledharan, director of ratings, Brickwork Ratings.
A clear picture will emerge once the Supreme Court rules on the bad debts, experts said. “After the Supreme Court issued its order removing the status quo on asset classification, banks and NBFCs are required to record gross NPAs based on actual late days in the fourth quarter of fiscal year 21. In As a result, in our view, there has been increased transparency in reporting GNPA figures for the fourth quarter of FY21 and FY21, ”Muraledharan said.
Care Ratings said pressure on asset quality is expected to continue due to restructuring, especially in the MSME segment. “Retail loans, especially unsecured loans, are also expected to come under significant stress. Downside risks include foreclosures in key states, which can impact industrial and service segments. Another risk includes the end of the ECLGS program in June 2021, which had supported MSME credit, ”he said.