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'Bank NPAs May rise to 11.6% by March 2021'
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SME Times News Bureau | 04 Jun, 2020
Ratings agency ICRA on Thursday estimated that bank's Gross NPAs will rise to 11.3-11.6 per cent by March 2021.
Accordingly, the rise is expected to occur on an estimated level of 8.6 per cent for March 2020.
"The
uncertainty on the asset quality of banks remains high with almost
30-40 per cent of loan book across various banks under moratorium
announced by the Reserve bank of India (RBI)," ICRA said in a statement.
According
to the rating agency, while the lockdown has impacted the debt
servicing ability of borrowers, the extent of revival in economic
activities as the restrictions are eased will drive the final impact on
asset quality of banks.
It pointed out that even if 10-20 per
cent of these borrowers were to default, the slippage rate for banks
could rise to 3-8 per cent of advances.
"The RBI moratorium to
borrowers was extended by another three months till August 31, 2020, and
we expect the asset quality stress is likely to reflect only in Q3
FY2021 and Q4 FY2021 results," said Anil Gupta, Sector Head - Financial
Sector Ratings, ICRA Ratings in the statement.
"The ability of
the borrowers and lenders to control the forward flows in overdue
buckets will remain critical to prevent a sharp rise in NPAs."
Furthermore,
ICRA said with expectations of higher slippages, the credit provisions
for banks are likely to rise and will have adverse impact on their
earnings.
As per ICRA estimates, the credit provisions will
continue to exceed the operating profits for the public sector banks
(PSBs) during FY2021, translating in a sixth consecutive year of loss.
"The
profitability of private sector banks (PVBs) will also moderate with
return on equity (RoE) declining to 3.5-5.1 per cent during FY2021 as
against earlier expectations of improvement to 10-12 per cent," the
statement said.
"With earlier expectations of improved asset
quality and profitability, the capital requirements for PSBs was earlier
estimated at Rs 100-200 billion for FY2021 and Government of India
(GoI) had expected PSBs to raise ca pital from markets and hence
possibly did not budget any capital infusion for FY2021."
Additionally,
ICRA projects the incremental credit growth of banks during FY2021 to
be Rs 6-7 trillion during FY2021 (Rs 5.9 trillion during FY2020) which
will translate in a Y-o-Y credit growth of 6 per cent to 7 per cent.
"The
few factors that could drive credit growth further will be the
sovereign guarantee on loans extended to MSMEs, capitalisation of
interest on loans under moratorium and expected slowdown in external
commercial borrowings," the statement said.
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