The fear of bad debts begins to recede



The specter of bad loans, which haunted the banking industry after the two separate waves of the pandemic since March 2020, has started to evaporate and has become less threatening today, bringing a sense of relief to industry boards. financial.

Most of the banks that reported their second quarter results saw a sequential reduction in their non-performing accounts (NPLs) and slippages in addition to an improvement in some of the other metrics such as collections and upgrades.

The recovery of fortunes – driven by improved loan recoveries – is accompanied by a recovery in economic activity and the steady decline in the number of Covid-19 cases.

In addition, the two loan restructuring programs announced by the RBI last year have prevented an increase in non-performing assets.

Bankers are now suggesting that if the current trend continues, their asset quality will improve further in the second half of the year, which could lead to a drop in the default rate at the end of this fiscal year.

Concerns also eased over the retail portfolio, which had experienced a slight increase (in stressed loans) over the April-June period due to the second wave. The positive outlook has improved the outlook for private and public sector banks.

Canara Bank, for example, expects its gross NPA ratio to fall to 7.5% in 2021-2022 from the current level of 8.42% – and 8.93% in 2020-2021 – due to better recoveries.

Although lender PSU saw its new slippages rise to Rs 6,525 crore (nearly half of which came from two Srei group companies) against Rs 4,253 crore in the previous three months, this was offset by its recoveries cash which jumped to over Rs. 3,000 crore from Rs 1,600 crore during the same period.

The bank also revalued loans worth Rs 2,671 crore, which led to a situation where clawbacks and revaluations exceeded slippages.

The country’s largest lender, the State Bank of India (SBI) also reported a marked improvement in the quality of its assets with further slippages sliding 73% from the previous quarter to 4,176 crore rupees . Recoveries and upgrading also improved to Rs 7,407 crore from Rs 4,969 crore in the first quarter.

State Bank of India Chairman Dinesh Khara said that although there were defaults on the retail side in the first quarter, the lender was able to pull it out in the July-September quarter. .

In addition, its collection efficiency now stands at 95% because mobility has improved with the decline in Covid cases.

“There could be a further drop in slippage in the second half, although a possible third wave could prove to be a spoiler. The restructured book is not very worrying either because they have been well supplied.

“Therefore, given the current conditions, we do not anticipate any major shocks on the asset quality front,” said a senior official at a PSU bank.

Axis Bank, which has seen its gross NPAs fall to a 20-quarter low, is also bullish. In a conference call with analysts after the second quarter results, its management said the second half of the fiscal year could see lower NPA net additions than in the April-September 2021 period, given the emphasis on collections.

From July to September 2021, its recoveries on written off retail accounts were 64% higher than in the previous three months.

In July, the Reserve Bank of India (RBI) Financial Stability Report predicted that the gross non-performing assets (GNPA) ratio of regular commercial banks could drop from 7.48% in March 2021 to 9.80% by March 2022 under the baseline scenario. and 11.22% in a severe stress scenario. During the fiscal year ended March 31, 2020, the banks’ GNPA ratio stood at 8.4%.

While it remains to be seen whether the current trend leads to a moderation of these numbers, some experts believe that the MSME portfolio could pose a challenge. In a recent report, rating agency Crisil said that banks’ gross NPAs will drop to 8-9% this fiscal year, well below the peak of 11.2% seen at the end of fiscal 2018.

He added that stressed assets in the retail segment will grow to 4-5 percent by year-end, from around 3 percent last year, largely due to non-lending. guaranteed.

Although it benefits tremendously from programs like ECLGS, the micro, medium and small enterprise (MSME) segment may witness a deterioration in asset quality and may need restructuring to manage cash flow issues.



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