Rise in Covid-19 cases, restrictions trigger fears of increase in Npa

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An increase in COVID-19 cases across the country and restrictions to prevent further spread could once again increase bad debts, economics experts fear. Loans from banks to microfinance institutions, small businesses, and unsecured loans like credit cards and personal loans are the most vulnerable and likely to turn into non-performing assets (NPAs).

Gross NPAs had declined in the second half of 2021 as the country passed the second wave of the pandemic. NPAs fell from 7.48% in March 2021 to 6.9% in September 2021. However, the percentage could rise further if movement restrictions are imposed.

In a note to clients on December 30, Emkay Global Financial Services said: “SMEs / MFIs remain the most vulnerable segments, and therefore banks with relatively higher exposure to these segments like Bandhan Bank, Ujjivan Small Finance Bank , IndusInd Bank, Axis Bank, RBL Bank, City Union Bank and DCB Bank could be exposed to relatively higher asset quality risk. “

Looking at the current trend of increasing COVID-19 cases, experts say it is entirely possible that more restrictions will be placed in states to verify community transmission of the virus.

Recognizing the likelihood of an increase in NPAs, public sector banks are exercising the utmost caution when distributing loans. The portfolios of loan seekers are thoroughly assessed to ensure their repayment capacity.

However, there is a silver lining. This time around, more people are vaccinated, and as a result, most of those who catch COVID are recovering without needing hospitalization. Analysts believe state governments won’t opt ​​for a strict lockdown if hospitals aren’t overwhelmed.

(Edited by : Thomas abraham)


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