Moody’s, BFSI News, ET BFSI

The gross NPL ratios of five public lenders, including the State Bank of India (SBI) and Punjab National Bank (PNB), declined by 100 basis points at the end of 2020, in comparison to the year before. Moody’s attributed the rise in asset quality, specifically for five large public lenders, which also include the Bank of Baroda (BoB), Canara Bank and Union Bank of India (UBI), to various measures extended to borrowers.

“With the economy poised to recover, a sharp deterioration in asset quality is becoming less likely,” said Moody’s in its assessment, adding that net NPL ratios were further lower due to a build-up of provisions against legacy NPLs.

SBI’s gross NPL ratio between December 2019 and 2020 declined from 7% to 5%, whilst Canara Bank’s NPL ratio declined by 1% from 10% to 9%. BoB’s NPL ratio also dripped by approximately 10% to 9%, whilst PNB witnessed a decline from approximately 15% of NPL’s to 14.5%. Union Bank of India’s gross NPL ratio remained above 14% between the two periods, whilst however recording a decline in its Net NPL ratio from 6% to 5%.

NPL recoveries Stagnate
NPL recoveries however stagnated between April and December 2020, largely due to the COVID-19 pandemic during which IBC resolutions were also suspended till Mach 2021. “We expect recoveries will gradually pick up in the next few quarters as the economy recovers,” said Moody’s in its report.

Loan Restructuring
The five public lenders had also restructured 0.7%-2.6% of their gross loans. Moody’s said the restructured loans were lower than its expectations, attributing it to a lower impact of the pandemic on borrowers, than anticipated.

“Given that banks can restructure loans to micro, small and medium enterprises (MSMEs) until the end of March 2021, restructured loans could increase in the next few quarters. However, we do not expect any increase to be material because the bulk of necessary restructuring should have been completed by the end of 2020,” Moody’s added.

Union Bank of India had the highest share amongst the five public lenders, with restructured loans as a percent upto 2.5% of gross loans, followed by Canara bank which had approximately 2.3%. PNB and BoB’s restructured loans as % of gross loans stood at 1.6% and 1.3%, respectively – whilst SBI had the lowest share with 0.7% of gross loans.