"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 third and fourth quarters of 2020-21 results," the rating agency's sector head (financial sector ratings) Anil Gupta said.
It said that while the lockdown has surely 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.
The credit provisions will continue to exceed the operating profits for the public sector banks (PSBs) during 2020-21, translating in a sixth consecutive year of loss, it said.
The profitability of private sector banks will also moderate with return on equity (RoE) declining to 3.5-5.1 per cent during 2020-21 as against earlier expectations of improvement to 10-12 per cent.
Gupta further said, "With thin capital cushions and expected increase in stress on asset quality and profitability, we expect PSBs (public sector banks) to require Rs 45,000 crore-82,500 crore of capital even under a scenario of low credit growth of 3-4 per cent during 2020-21."
The incremental credit growth
of banks during this financial year is expected to be Rs 6-7 trillion which will translate into a year-on-year credit growth of around 6-7 per cent.
This will be driven by 3.5-4.3 per cent growth by state-owned banks and 7-9 per cent by private lenders, the rating agency said.