The last time when banks received dispensation on asset recognition was in 2016, after demonetisation. The RBI gave a 90-day window for classifying certain retail loans as NPAs. “Without a similar dispensation being extended from the March quarter, banks could find it very difficult to sail though,” said a top executive of a state-run bank. Another senior banker said unless such dispensations are soon given, it may be difficult, especially for private banks, to lend support to customers. While most state-owned banks have come out with special schemes for their customers battling the lockdown, private banks are yet to act. “The longer it takes to roll out these relief measures, the prolonged will be the period of dull growth for banks,” he adds while mentioning that business volumes have been quite negligible in the last two weeks.
Investors need to remember that loan growth has been pale at single-digit in CY20, so far. Therefore, unless the RBI temporarily relaxes its NPA norms, banks may find the going getting tougher. PhillipCapital estimates that NPAs could rise by 250 basis point for the sector if relaxations are not given.
Thus, “Until there is clarity on the sort of dispensation the RBI is willing to roll out, investors should not be fancied by the steep correction in banking stocks,” says a research analyst of a foreign brokerage.