Bad loans to rise sharply, PSBs stare at 6th year of loss: ICRA

Capital infusion of up to ₹82,000 crore needed, says agency

With debt servicing capacity of borrowers coming under strain as the country enters a period of possible economic recession, bad loans of Indian banks are expected rise sharply this fiscal, which could lead to yet another year of loss for public sector banks (PSBs), ratings agency ICRA said in a report.

ICRA estimated gross non-performing assets to rise to 11.3-11.6% by March 2021 from an estimated level of 8.6% for March 2020, with fresh gross slippage of 5-5.5% of standard advances in FY21.  The agency said uncertainty on the asset quality of banks remains high with almost 30-40% of the loan book across various banks under the repayment moratorium. 

“While the lockdown has 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,” ICRA said, adding even if 10-20% of these borrowers were to default, the slippage rate for banks could rise to 3-8% of advances. It added that credit provisions will continue to exceed operating profits for PSBs during FY21, translating to the sixth consecutive year of loss.  

PSBs will need estimated capital infusion of ₹45,000 crore to ₹82,500 crore against an earlier estimated ₹10,000 crore to ₹20,000 crore even under a scenario of low credit growth of 3-4% for FY21, ICRA said. The Centre had expected PSBs to raise capital from the markets and hence possibly did not budget for any capital infusion for FY21. “The RBI moratorium was extended... till August 31, 2020; we expect the asset quality stress to reflect only in Q3 and Q4 of FY21 results,” said Anil Gupta, sector head, Financial Sector Ratings, ICRA Ratings.

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Printable version | Jul 4, 2020 1:32:35 AM |

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