This will certainly put some pressure on the capital position of lenders. As banks have core equity capital of 10-15 per cent and the same for the shadow banking sector is at 12-15 per cent, a 5 per cent incremental asset quality stress due to covid would pose risk to the capital of some of the lenders in the current fiscal.
Although the credit growth in this fiscal is estimated to be low, but with rising bad loans, and muted profitability, the additional capital requirement can be as high as Rs 45,000 - 82,500 crore for public sector banks during FY21 and Rs 25,000 – 48,300 crore for private banks during FY21-22. Similarly, the NBFCs may require capital to the tune of Rs 25,000-35,000 crore to absorb asset quality shocks and provide comfort to their lenders.
In the month of July, the collection efficiency of lenders has improved a lot, with the gradual opening up of the economy, however, it has still not reached the pre-covid levels (90-95 per cent collection). Although the gradual relaxations in restrictions imposed during the lockdown have helped in improving the collection efficiencies and thereby reduction in residual assets under moratorium, the pace of recovery seems lower than expected because of localised re-imposition of lockdowns by various states over the last two months, ICRA
With moratorium on repayments ending in August, some have asked for an extension in moratorium while others
have pitched for a one-time restructuring of loans. Unlike the previous non-performing asset problem, where the corporate book of banks was under immense pressure, this time the stress seems to be emerging from the micro small and medium enterprises (MSMEs), agriculture and retail (especially self-employed) segments.
While loan restructuring could postpone the recognition of stress in the lender book in the near-term, high share of such assets would be a credit negative, Icra
It further said, if a one-time restructuring window is made available, more borrowers may opt for it to ease out the near-term uncertainties, conserve liquidity and, to smoothen their cash flow as economy takes the turn for revival. If the RBI were to consider one-time restructuring, it is expected to be extended to certain sectors which would take longer to recover.
Public Sector Banks require capital of Rs 45,000-82,500 crore in FY21
Private Sector Banks require capital of Rs 25,000-48,300 crore during FY21-22
NBFCs require Rs 25,000-35,000 crore capital during the current fiscal