Around half the loan customers in India had availed of the option of deferring their loan instalments through the RBI’s dispensation, the Financial Stability Report released by the RBI last month showed. State-owned banks
accounted for a large chunk (62 per cent) of the total wholesale credit under moratorium, compared to their private peers (29 per cent).
Much will also depend upon the regulator’s next set of forbearances, said another government official. The government has requested the RBI to allow banks to do a one-time restructuring of loans to help companies deal with the impact of the national lockdowns put in place to slow the spread of Covid-19 from March 25 this year.
Banks require capital to deal with stress on their books or to increase their ability to lend. While the stress levels will be visible in the second half of the year, the requirement for growth capital will not be much for now as economic activities will take some time to go back to pre-Covid-19 levels. Non-food credit growth slowed to 6.7 per cent in June, compared to 11.1 per cent a year ago.
“The stress scenario is unclear as the impact of the moratorium has to be evaluated. The real impact will be visible in the second-quarter results of corporates. It will further depend upon the kind of restructuring the RBI allows,” said a senior Indian Banks’ Association executive.
For now, the government has told state-owned banks to raise money from the markets, so that its equity stake is diluted as the government’s share in PSBs has touched or breached 90 per cent for many lenders. Markets regulator Securities and Exchange Board of India wants state-owned banks to reduce the promoter (i.e., government) stake to 75 per cent within two years after this limit has been reached.
Bankers said the capital requirement this fiscal year may not be huge for lenders. “It will not be as bad as we expect it to be. We expect a delinquency (or slippage of good loans into bad) of 5 per cent as we have seen in the past two-three years. If the overall credit in the system is Rs 100 trillion, the provisioning requirement for PSBs will be Rs 1 trillion; banks make an annual operating profit of Rs 1.5 trillion,” said a managing director and chief executive officer of a PSB.
The PSB chief executive said the highest level of delinquency is seen in the micro, small and medium enterprises loan accounts, which have got adequate support from the government and the regulator during the pandemic.
According to the RBI, the gross NPA ratio of PSBs will increase to 15.2 per cent by March 2021, from 11.3 per cent a year ago “under the baseline scenario”.
The government has infused Rs 3.5 trillion into PSBs in the past few years, with the previous round of recapitalisation taking place in September 2019, when the government decided to front-load Rs 70,000 crore into banks. Most of the capital infusion has taken place through issuance of bonds, which does not have an immediate impact on the government’s finances, but it becomes a liability on the government in the years to come due to interest payment.
Since the government has to borrow an additional Rs 4.2 trillion over the Rs 7.8 trillion pegged in the Budget, the government’s interest burden, too, will increase when these bonds come up for redemption. The interest burden will further increase if the government issues redemption bonds. While the N K Singh panel wanted the Centre and states to have debt over 64 per cent of gross domestic product for 2020-21, there are already fears that the debt might cross 80 per cent.