According to Anil Gupta, Sector Head – Financial Sector Ratings, Icra Ratings, While the headline asset quality and restructuring numbers are encouraging, these don’t reflect the underlying stress on the asset quality of banks.
“The level of loans in overdue categories has increased after upliftment of moratorium and the impact on asset quality will be spread over FY21 and FY22 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks”, he said.
Based on the restructuring guidance given by various banks, the overall volume of restructured advances is estimated at 1.3-1.5 per cent of the advances, much lower than what analysts and rating agencies had initially estimated.
In a report rating agency Icra has highlighted that despite the impact of Covid-19 pandemic on debt servicing ability of borrowers, the gross fresh slippages for banks stood much lower at Rs 1.8 trillion (2.7 per cent of advances on annualised basis) during 9MFY21 as compared to Rs 3.6 trillion (4.1 per cent) during FY2020.
And, this has mainly been driven by the various relief measures such as a moratorium on loan repayment, a standstill on asset classification, and liquidity extended to borrowers under the guaranteed emergency credit line.
While the gross NPAs are expected to rise in the coming quarters, the net NPAs is expected to be relatively lower because of significant provisions made by banks on their legacy NPAs.
“Even on a pro forma basis, the net NPAs were lower as on December 31, 2020 as compared to March 31, 2020. While the net NPAs are expected to rise marginally to 3.0-3.1 per cent by March 31, 2021, it will decline to 2.3-2.5 per cent by March 31, 2022”, said Icra.
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