Tag: bad loans

How did public sector banks become profitable in FY21?, BFSI News, ET BFSI

Banking & Finance

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Finance Minister Nirmala Sitharaman last week, while making the announcement of the National Asset Reconstruction Company Ltd, claimed that the performance of public sector banks has improved, with just two public sector banks reporting losses.

“In 2018, just two out of 21 public sector banks were profitable. But in 2021, only two banks reported losses for the full year,” she had said.

Also read: Finance Minister Sitharaman announces bad bank, Cabinet approves backing of up to Rs 30,600 crore

From 2015, when the Reserve Bank of India conducted an Asset Quality Review (AQR), public sector banks started to make a lot of provisions in their loans. Non performing assets in the banking sector jumped 80% in FY16, according to RBI data, quoted in the July 2015 AQR.

The AQR created havoc on banks’ profitability, especially affecting state-owned banks because majority of their loans were provided to corporates.

Banks had been directed to keep increasing provisioning of accounts that were restructured from 5% to 15%, and accounts that were classified as sub-standard (first category of NPA), would slip into doubtful category if it stayed sub-standard for 12 months, attracting 40% provisioning. And if the loan is not serviced at all, the bank would have to treat it as a loss account with 100% provisioning.

Major PSBs reported record losses for the first time in the fourth quarter of FY16, like Bank of Baroda with Rs 3,230 crore and Punjab National Bank with Rs 5,367 crore.

Banks entered an NPA cycle, till 2021. The government came out with two major relief measures – recapitalisation, starting 2017, and merger of smaller public sector banks with large anchor banks.

Also read: Several NPAs transferred to bad bank may head to liquidation, cost govt a bomb

“Mergers of the banks is the step in the right direction as fewer banks with larger balance sheets would be able to compete better in the market,” said Yuvraj Choudhary, research analyst at Anand Rathi Financial Services.

In FY18, there were a total of 21 public sector banks, and as Sitharaman said, only two public sector banks reported profits – Indian Bank and Vijaya Bank.

“PSBs were reeling under corporate asset quality burden for long, more so after RBI’s AQR exercise. This was aggravated by forced mergers, which led to losses due to accelerated recognition and provisioning. Growth too decelerated as banks were busy with merger and had capital constraints,” an analyst with Emkay Global Financial Services said.

PUBLIC SECTOR BANKS FY18 STANDALONE NET PROFIT/LOSS (in Rs)
State Bank of India (-) 6,547 crore
Punjab National Bank (-) 12,283 crore
Bank of Baroda (-) 2,432 crore
Bank of India (-) 6.044 crore
Central Bank of India (-) 5,105 crore
Canara Bank (-) 4,222 crore
Union Bank of India (-) 5,247 crore
Indian Overseas Bank (-) 6,300 crore
Punjab & Sind Bank (-) 744 crore
Indian Bank 1,259 crore
UCO Bank (-) 4,436 crore
Bank of Maharashtra (-) 1,146 crore
Oriental Bank of Commerce (-) 5,872 crore
United Bank of India (-) 1,455 crore
Andhra Bank (-) 3,413 crore
Allahabad Bank (-) 4,674 crore
Corporation Bank (-) 4,054 crore
Syndicate Bank (-) 3,223 crore
IDBI Bank (-) 8,238 crore
Dena Bank (-) 1,923 crore
Vijaya Bank 727 crore

Starting FY21, only 12 state-owned banks have remained. Six weaker PSBs had been merged with four anchor banks – Andhra Bank and Corporation Bank were merged with Union Bank, Oriental Bank of Commerce and United Bank of India with Punjab National Bank, Syndicate Bank with Canara Bank, and Allahabad Bank with Indian Bank.

In 2019, Dena Bank and Vijaya Bank were merged with Bank of Baroda, and IDBI Bank was recategorised as a private bank, with Life Insurance Corporation of India buying 51% stake. So far, IDBI Bank is the only PSB that has been privatised.

Mergers of public sector banks aided in reducing operation costs for the banks, but banks are not in the position to absorb any weak banks, according to analysts. “This is true even for SBI. Privatization of weak banks is the best way to weed them out,” the analyst at Emkay Global said.

Though mergers had caused a bit of a correction in the PSBs’ profitability earlier, mergers did not have any role to play in their profitability in FY21, analysts said.

“PSBs have turned profitable since past few quarters mainly due to healthy treasury gains and some lumpy corporate resolutions, (for eg. Bhushan Power). Impact of COVID-19 on corporate portfolio was relatively moderate, leading to further moderation in NPAs and lower incremental provisioning, which supported profitability,” the analyst at Emkay Global said.

Of the 12 banks, only two reported losses in FY21 – Punjab & Sind Bank and Central Bank of India.

PUBLIC SECTOR BANKS FY21 STANDALONE NET PROFIT/LOSS (in Rs)
State Bank of India 20,410 crore
Punjab National Bank 2,022 crore
Bank of Baroda 829 crore
Bank of India 2,160 crore
Central Bank of India (-)888 crore
Canara Bank 2,558 crore
Union Bank of India 2,905 crore
Indian Overseas Bank 831 crore
Punjab & Sind Bank (-)2,732 crore
Indian Bank 3,004 crore
UCO Bank 167 crore
Bank of Maharashtra 550 crore

Sitharaman, at the press conference last week, also said that banks have recovered Rs 3.1 lakh crore since March 2018.

This was possible because sizeable recovery from lumpy corporate NPAs, by way of cash and write-offs, was expected. Some resolutions including Essar, Bhushan, were major contributors to these recovery numbers, analysts said.

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How banks in Europe are managing bad loans, BFSI News, ET BFSI

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Credit crunch was beginning to become a major problem for banks in Europe, however, they seem to have found a way to tackle the issue.

Non-performing assets in European banks were piling up due to COVID-19. As of the second quarter of 2020, the NPA ratio for all banks in the region was at 2.8%, up 0.2 percentage points from a year ago.

According to reports, banks set aside lower provisions for potential loan losses in the second quarter of 2021, with UK banks booking significant reversals. Booking reversals here means that overall funds that accounted for bad loans shrank, making risk from bad loans manageable, according to analysts.

According to data by S&P Global Market Intelligence, 12 of the 25 largest banks in Europe booked reversals, and loan loss provisions have been put aside to cover potential costs arising from defaulting loans.

Of the 12 — Barclays PLC, NatWest Group PLC, Lloyds Banking Group PLC, HSBC Holdings PLC and Standard Chartered PLC — are based in the UK, with Barclays releasing the highest amount of 911 million euros, according to their data.

So far, banks have not seen a surge in bad loans. However, with talks of central banks moving towards tapering COVID-19 support, the market expects deterioration in asset quality.

This is likely to be more visible in 2022 and will happen gradually rather than suddenly since the measures will not end all at once, DBRS’ Rivas told S&P Global.

If banks do need top-up provisions due to additional bad loans in pandemic-affected sectors, the risks would likely be against earnings rather than capital, said S&P Global Ratings’ Edwards.

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MSMEs, retail loans to take bank NPAs to Rs 10 lakh crore by March 2022, BFSI News, ET BFSI

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Banks’ bad loans might cross Rs 10 lakh crore by the end of this fiscal, mainly on account of slippages in retail and MSME sectors, a study said.

“NPAs are expected to rise to 8.5-9 per cent by March 2022, driven by slippages in retail, Micro, Small and Medium Enterprise (MSME) accounts, besides some restructured assets,” the study by industry body Assocham and ratings firm Crisil said.

Reserve Bank of India (RBI) Governor Shaktikanta Das this month had said the current levels of non-performing assets (NPA) looks manageable.

At the end of June, the gross NPA level of the banking system was 7.5 per cent and the capital adequacy level was around 16 per cent, which gives an adequate cushion, Das said at an event.

MSME, retail hit

The current asset quality stress cycle will be different than that witnessed a few years back. NPAs then came primarily from bigger, chunkier accounts.

According to the study, this time, smaller accounts, especially the MSME and retail segments, are expected to be more vulnerable than large corporates, as the latter have consolidated and deleveraged their balance sheets considerably in the past few years.

Even though the restructuring scheme announced for MSMEs and small borrowers should prevent the NPAs from rising too much, there is an opportunity for stressed asset investors with expertise and interest in these asset classes, it added.

”The effectiveness of the Insolvency and Bankruptcy Code (IBC) will be tested by the potential spike in NPAs as the standstill on initiation of fresh insolvency cases for year ended in March 2021 and as most of the pandemic-induced policies or measures are unlikely to be continued”the study said.

IBC to rescue

The expected increase in GNPAs of both banks and non-banks this fiscal, because of the pandemic, will provide an opportunity for players in the stressed assets market through resolution via various routes, with IBC likely to be the most preferred.

However, the GNPAs of banks have declined from the peak seen in March 2018 and were lower as of March 2021 as against March 2020. Supportive measures, including the six-month debt moratorium, Emergency Credit Line Guarantee Scheme (ECLGS) loans and restructuring measures were among the main reasons.

According to the study, the risk management practices of Indian banks, especially public sector banks, have scope for improvement.

In the past, laws were not in favour of lenders and allowed erring promoters to exploit the tedious recovery procedure. This is borne out by the high number of wilful defaulters of banks, it noted.

”However, RBI has tightened norms for such defaulters and made stressed asset resolution norms more stringent. That, coupled with increased resolution of large-ticket NPAs under the IBC framework, have contributed to better recovery of NPAs,” the study said.

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Restored normalcy in PSU banks hamstrung by sticky bad assets: Finance minister Nirmala Sitharaman

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She said there are lot of changes happening in the banking sector at a fast pace through digitisation. (File)

Union finance minister Nirmala Sitharaman on Sunday said the government was able to bring back normalcy with regards to mounting non-performing assets (NPAs) in most of the public sector banks that have been a cause of concern since 2014.

The Centre, apart from infusing required capital, monitored  the PSU banks with regular assessment and reviews while taking prompt corrective actions.

Inaugurating the centenary celebrations of Tamilnad Mercantile Bank (TMB) at Tuticorin, Sitharaman said the problems in banking sector are major problems that concern the entire country which also made everyone feel concerned about the sector.

“Post 2014, we had witnessed major NPA problems in the PSU banks, it took five to six years to reverse the trend and bring back normalcy in most of the banks. While the banks spent energy in the recovery process, even as trying to grow their businesses,” she said.

While speaking on bringing about the efficiency in the banking system, she said the way forward for any bank was to adopt complete technology-enabled solutions.

“Today financial technology is the biggest area and using that we could cross-populate data into forms. Auto-populating data of a consumer has been very useful and it can be done only through digitisation and the management of TMB should think of greater use of digitisation. Digitisation cannot be avoided for your own good and for the sake of customers,” she said.

She said there are lot of changes happening in the banking sector at a fast pace through digitisation. “There is no necessity to open a branch in a place which does not have a  bank. To reach a customer’s bank account of the people who live there, all kind of technologies are available today. Even sitting from Tuticorin one can serve the banking requirements of people living in small villages through technology”, she said.

Sitharaman said even during Covid-19 pandemic with the use of digitisation through banking correspondents, the government’s financial disbursements were distributed to the needy after verifying their details.

“Prime Minister Narendra Modi was clearly aware that banking is important and did not hesitate that there can be zero balance accounts if they were opened under the Jandhan Yojana scheme, launched in 2014. He ensured that every one must hold a bank account and be able to transact,” she said.

K V Rama Moorthy, MD & CEO, TMB, said, “To help borrowers to overcome the adverse impact of Covid-19, till date, the bank has covered 13,753 beneficiaries and the exposure to the tune of Rs 1,567.62 crore. In the era of digital banking, we were the first bank to introduce robotics in currency chest to sort and bundling of currencies in order to provide quality service to the customers. Disbursement of loans to pharma and health care units will be at the heart of a year- long series of events and initiatives from us.”

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Four things you may not know about P2P lending

Personal Finance

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With interest rates on bank deposits at rock-bottom, fintech players are tying with peer-to-peer (P2P) lending platforms to showcase loan products as a lucrative alternative to bank deposits or mutual funds. But before you bite the bait and sign on as an investor in one of them, you need to be aware of how these loan products work.

They’re loosely regulated

P2P lending platforms are RBI-regulated, but the regulations are far sketchier than those for banks or mainstream NBFCs. While a bank or NBFC is required to adhere to dozens of norms on net worth, loan composition, capital adequacy, leverage, recognition of bad loans et al, P2P platforms only need to have net owned funds of ₹2 crore, cap their leverage at two times, while they stick to unsecured loans for tenures up to 36 months.

When signing up, you may need to do some digging to know if you’re dealing with a regulated P2P platform, as they usually operate through tie-ups. The regulated entity that is facilitating your loan and thus is under RBI’s watch, may be two steps removed from the fancy app or front-end fintech player you’re interacting with. For instance, for its P2P lending business, CRED Mint states that it has tied up with Liquiloans, a P2P platform. However, Liquiloans by itself does not figure in RBI’s list of registered P2P entities. Instead, Liquiloans appears to be brand name used by NDX P2P Private Limited which is an RBI registered NBFC-P2P. Do ensure that you peel the onion to verify if the P2P platform you’re dealing with is registered with RBI. You can do that here: https://tinyurl.com/p2prbilist

You’re lending, not investing

While wooing lenders, many P2P platforms plug the 2X or 3X ‘returns’ on their loans compared to returns on investments such as bank fixed deposits or mutual funds. But don’t let the promises of compounding and wealth generation mislead you into believing that lending on a P2P platform is the same as investing with a bank or mutual fund. When a bank borrows from you, its promise to repay you is backed by many regulatory safeguards such as the Statutory Liquidity Ratio, Cash Reserve Ratio, deposit insurance and so on. If bank fails to honour its promise, it can spell doom for its business. Indeed, that’s why the government and RBI often step in to rescue banks even before there’s first whiff of a default. With a mutual fund, there’s a professional fund manager selecting bonds or stocks and her/his performance is benchmarked against peers and the index.

But on a P2P platform, you’re essentially lending to a stranger who has happened to approach you through an app. The platform may use fancy algorithms to filter and present to you individuals whom it thinks are credit-worthy. But ultimately the borrower’s ability and his or her willingness to repay you, will decide if you’re going to get back your money. Unlike other ‘investments’, your principal in a P2P transaction is always at risk and the high interest rate compensates for this risk. In fact, if a borrower is willing to pay 2X or 3X bank deposit rates, that shows how high the risk to your principal is. Check the portfolio performance metrics of a P2P to see default rates of borrowers. The more information that a platform gives you on this, the better-equipped you are to gauge risk.

You’re dealing with individuals

P2P platforms in India are of very recent origin and don’t have established institutions backing them. They, therefore, tend to showcase their pedigree by highlighting the private equity and angel investors who’ve funded them, or business houses they’re partnered with. But private equity investors are often just financial investors in P2P platforms who don’t play an active role in their running. Business partners who’ve tied up with the platform are likely looking to their own business interests for a fee.

When you’re lending on a P2P platform, be aware that you’re not dealing with an institution, you are dealing with the individual or individuals you are lending to.

The platform is merely playing the facilitator to this transaction. RBI rules clearly specify that a regulated P2P NBFC can only be an intermediary providing an online marketplace, where lenders and borrowers meet.

It cannot raise any deposits from you, lend its own money or even hold any money on its own balance sheet. The platform also cannot provide any guarantee that borrowers will repay their loans or allow them to offer any security against their loans.

The P2P loan is essentially a contract between an individual borrower and individual lender. This makes it important for you to understand the credit score and credit worthiness of the borrower or borrowers you are lending to and terms you are signing off on. Whenever you make a transaction, the platform is required to disclose to you the personal identity of the borrower, the loan amount, interest rate and credit score, apart from the loan contract itself.

Know your liabilities

When there are defaults, P2P platforms use either internal or hired staff to facilitate recovery of loans. While P2P platforms admit to using both ‘hard’ and ‘soft’ methods for recoveries, the RBI has a very strict code in place on the practices that all NBFCs may and may not employ to recover loans from defaulters.

When a P2P platform attempts recoveries of your loan, it effectively acts as an agent on your behalf. Any hardball tactics it or its agents use can reflect or backfire on you.

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Covid second wave raises asset risks for banks: Moody’s

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The coronavirus wave will lead to new problem loans in the retail and SME segments, but a severe asset quality decline is unlikely, according to Moody’s Investors Service.

Banks’ improved profitability, capital and loss buffers will help them absorb anticipated loan losses and maintain credit strength, the global credit agency said in a report.

Moody’s observed that India’s second coronavirus wave is increasing asset risks for banks, but the country’s economic recovery, a tightening of loan underwriting criteria and continued government support will prevent a sharp spike in problem loans.

Stable NPL ratio

The agency’s baseline expectation is that newly formed non-performing loans (NPLs) at public sector banks will increase nearly 50 per cent to about 1.5 per cent of gross loans annually in the next two years.

Nevertheless, banks’ average NPL ratios will remain broadly stable, driven by the resolution of legacy NPLs and acceleration of credit growth, the global credit rating agency said in a report.

“A severe deterioration of banks’ asset quality is unlikely, despite an expected rise in new loan impairments, particularly among individuals and small businesses that were hit hardest by the virus outbreak.

“This is because government initiatives like the emergency credit-linked guarantee scheme (ECLGS) have been effective in providing immediate liquidity for businesses,” Alka Anbarasu, a Moody’s Vice President and Senior Credit Officer, said.

In addition, accommodative interest rates and loan restructuring schemes will continue to mitigate asset risks, such that the coronavirus resurgence will delay but not derail the improvements in banks’ balance sheets that had begun before the pandemic.

Moody’s said the banks rated by it also have stronger loss-absorbing buffers, which will help them withstand the asset quality decline and maintain their credit strength.

Banks had reinforced these buffers in the past year through increases in capital, loan-loss reserves and profitability, it added.

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Govt considers operational changes in IBC following expert panel recommendations, BFSI News, ET BFSI

Banking & Finance

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India is considering several operational changes in the Insolvency and Bankruptcy Code (IBC), harnessing digital technology to help remove seemingly insurmountable obstacles of distance or time – and speed up the resolution of bad loans.

The Indian Institute of Insolvency Professional of ICAI (IIIPI), which constituted a study group, has recommended greater adoption of digital modes, such as holding virtual meetings of courts and CoC (committee of creditors) and deploying AI (Artificial Intelligence), even after eventual restoration of normality due to the time-saving benefits of digital technology.

Under the aegis of Insolvency and Bankruptcy Board of India (IBBI), IIIPI regulates insolvency professionals, who play a key role in the execution of bankruptcy resolution plans. It has submitted a set of recommendations made by the study group to the ministry of corporate affairs and IBBI.

The Ministry of Corporate Affairs did not respond to ET’s mailed query.

“In addition to sprucing up the infrastructure, the NCLT should consider continuing ‘virtual courts’ even after normalcy restores,” IIIPI said in a note viewed by ET. “In virtual courts, senior officials can participate without travelling from remote offices, which helps in fast decision making and reduces pendency.”

It is necessary to learn from every crisis, which is what the said report seems to be doing on recommending best practices.

Virtual meetings during Covid restrictions, according to IIIPI’s study, resulted in quick decision making as senior officials used to participate.

“This should be continued as a ‘best practice’ even after normalcy resumes,” said the note.

Dewan Housing Finance (DHFL) is a classic case in point. The troubled non-banking finance company, for which the government amended the law to bring it under the IBC, has finally been sold. The resolution process ended successfully, albeit after multiple litigations.

The study group report by the largest body of insolvency professionals also urged the authorities to nip in the bud the menace of frivolous cases, often intended to cause delays in resolutions.

Section 60(5)(a) of IBC gives NCLT the jurisdiction to entertain and dispose of any application or proceeding by or against the corporate debtor or corporate person.

This may be amended to restrict and specify the grounds on which any applicant can approach NCLT for rectifying grievances. IBBI is urged to take up the issue on priority, said one of the recommendations in the report.

DHFL received about 40-50 cases challenging decisions by either the central bank-appointed administrator or the CoC.

“Artificial Intelligence (AI) based facilities should be used for people tracing, asset tracing and transaction tracing,” it recommended.



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Minister, BFSI News, ET BFSI

Banking & Finance

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Non-performing assets (NPAs) or bad loans of banks have declined by Rs 61,180 crore to Rs 8.34 lakh crore at the end of March 31, 2021, as result of various steps taken by the government, Minister of State for Finance Bhagwat K Karad said on Monday.

Scheduled commercial banks (SCBs) were carrying NPAs worth Rs 8.96 lakh crore on their balance sheet at the end of March 2020.

“Primarily as a result of transparent recognition of stressed assets as NPAs, gross NPAs of SCBs, as per RBI data on global operations, rose from Rs 3,23,464 crore as on 31.3.2015, to Rs 10,36,187 crore on 31.3.2018, and as a result of Government’s strategy of recognition, resolution, recapitalisation and reforms, have since declined to Rs 9,33,779 crore on 31.3.2019, Rs. 8,96,082 crore as on 31.3.2020, and further to Rs 8,34,902 crore (provisional data) as on 31.3.2021,” he said.

Karad in a written reply to the Lok Sabha said COVID-19 Regulatory Package announced by RBI permitted lending institutions to grant a moratorium of six months on payment of all instalments falling due between March 1 and August 31, 2020, in respect of all term loans and to defer the recovery of interest for the same period in respect of working capital facilities.

Replying to another question, Karad said, gross NPAs of public sector banks (PSBs) peaked at Rs 8,95,601 crore on March 31, 2018.

As a result of Government’s strategy of recognition, resolution, recapitalisation and reforms, NPAs have since declined to Rs 7,39,541 crore on March 31, 2019, Rs 6,78,317 crore on March 31, 2020 and further to Rs 6,16,616 crore as on March 31, 2021 (provisional data).

“The net NPAs have displayed a similar trend, increasing initially from Rs 1,24,095 crore on 31.3.2014 to Rs 2,14,549 crore on 31.3.2015, Rs 3,24,372 crore on 31.3.2016, Rs 3,82,087 crore on 31.3.2017 and peaking at Rs 4,54,221 on 31.3.2018, and declining thereafter to Rs 2,84,689 crore on 31.3.2019, Rs 2,31,551 crore on 31.3.2020 and further to Rs 1,97,360 crore as on 31.3.2021 (provisional data),” he said.

Throughout this period, he said, PSBs continued to post aggregate operating profits of Rs 1,37,151 crore, Rs 1,58,994 crore, Rs 1,55,603 crore, Rs 1,49,819 crore, Rs 1,74,640 crore in the financial year 2015-16, 2016-17, 2017-18, 2018-19 and 2019-20 respectively.

“However, primarily due to continuing ageing provision for NPAs, they made aggregate provision for NPAs and other contingencies of Rs 1,55,226 crore, Rs 1,70,371 crore, Rs 2,40,956 crore, Rs 2,17,481 crore and Rs 2,00,404 crore respectively in the said years, resulting in aggregate net losses of Rs 17,993 crore, Rs 11,389 crore, Rs 85,370 crore, Rs 66,636 crore and Rs 25,941 crore respectively and returning to profitability thereafterwith aggregate net profit of Rs 31,820crore in FY2020-21,” he said.

At the same time comprehensive steps were taken to control and to effect recovery in NPAs, which enabled PSBs to recover Rs 5,01,479 crore over the last six financial years, he added.

In a reply to another question, Karad said overall credit growth of Scheduled Commercial Banks (SCBs) has remained positive for 2020-21 despite contraction in GDP (-7.3 per cent) due to the COVID-19 pandemic.

‘Gross Loans and Advances – Outstanding’ of SCBs increased from Rs 109.19 lakh crore as of March 31, 2020 to Rs 113.99 lakh crore as of March 31, 2021, he said.

Further, he said, as per RBI data of loans to agriculture and allied activities, micro, small & medium enterprises, housing and vehicle have witnessed a year-on-year growth of 12.3 per cent, 8.5 per cent, 9.1 per cent and 9.5 per cent respectively during the year.

Ability of PSBs to further increase lending is evident through Capital to Risk Weighted Assets Ratio which stood at 14.04 per cent as of March 31, 2021, as against regulatory requirement of 10.875 per cent, he added.



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CSB Bank Q1 net rises 14%; asset quality deteriorates

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Net interest income of the lender is seen higher by 44.5% y-o-y at Rs 267.8 crore for Q1. (Picture courtesy: IE)

CSB Bank on Thursday reported a 14% year-on-year increase in its first quarter net profit to Rs 61 crore, even as bad loans surged in the gold loan portfolio. The Thrissur-based lender had reported a net profit of Rs 53.56 crore in Q1 of FY21 and a net profit of Rs 42.89 crore in the fourth quarter of the previous fiscal.

The asset quality of the lender deteriorated, with gross non-performing assets (NPA) as a percentage of gross advances standing at 4.88% for Q1FY22, from 2.68% in the preceding quarter and 3.51% in the year-ago period. Net NPA as a percentage of gross advances was at 3.21%, against 1.17 % in the preceding quarter and 1.74% in the first quarter of FY21.

CVR Rajendran, managing director and CEO, said the bank is confident of managing NPAs as the challenges are mainly from the gold segment where recovery is only a matter of time.

Fresh slippages in the quarter under review was seen at Rs 435 crore, of which Rs 337 crore was from gold loans. The gross NPA at the end of Q1 stood at Rs 686 crore, against Rs 401 crore in the year-ago period.

“COVID second wave, coupled with the LTV management of gold loans, did pose some challenges in the first quarter of FY 22. Lockdowns, alternate holidays, slowing down of the economic activity, controlled movements due to strict social distancing norms, lack of transport, etc restricted the customer access to branches, which in turn impacted both fresh pledges and releases. Thankfully, the worse seems to be over now and recoveries are happening in full swing,” he added.

Net interest income of the lender is seen higher by 44.5% y-o-y at Rs 267.8 crore for Q1. Provision coverage is seen lower at 70.20% as on June 31, 2021, compared with 81.73% in the year-ago period.

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Fresh NPAs may see a spike, but overall bad loans may decline to 7.1% in FY22, BFSI News, ET BFSI

Banking & Finance

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Notwithstanding the Reserve Bank of India projections of gross non-performing assets rising to 9.8% of total loans this fiscal, the bad loans may decline to at least 7.1 percent by March 2022, as against 7.6 percent at FY21-end.

The NPAs will go lower on higher recoveries and upgrades, and also faster credit growth, ratings agency Icra said, adding that the fresh accretion to the NPAs will be higher in FY22 due to the absence of any regulatory dispensations like moratoriums.

The GNPAs and NNPAs (net NPAs) are expected to decline to 6.9-7.1 percent and 1.9-2.0 percent respectively by March 31, 2022, it said.

What RBI said

The Reserve Bank’s financial stability report had said the GNPAs at March 2021 had come at 7.6 percent and estimated it to rise to 9.8 percent in FY22-end under its base-case assumptions. RBI Governor Shaktikanta Das had said the dent on balance sheets and performance of financial institutions in India has been much less than projected earlier, but a clearer picture will emerge as the effects of regulatory reliefs fully work their way through.

The new math

The rating agency said the fresh NPA generation declined to Rs 2.6 lakh crore or 2.7 percent of advances in FY21 compared to Rs 3.7 lakh crore or 4.2 percent in FY20 and added that the same will be higher in FY22. The headline asset quality numbers of banks do not reflect the underlying stress on the income and cash-flows of the borrowers impacted because of COVID-19 and various regulatory and policy measures such as the moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under Emergency Credit Line Guarantee Scheme (ECLGS) had a positive impact on the reported asset quality of lenders.

In the absence of standstill on asset classification, we expect the fresh NPAs generation to be higher, however, we also expect the recoveries and upgrades to improve in FY22, it said, adding that the first half of the ongoing fiscal can see higher accretions due to the second wave of the pandemic. The credit provisions for the banks moderated to 2.5 percent of advances in FY21 compared to 3.7 percent in FY20, even as the core operating profits improved with the cost curtailment measures.

PSB turnaround

Within the sector, the turnaround was remarkable for public sector banks, which reported profits after five consecutive years of losses and with NNPAs at the lowest levels seen over the last six years (3.1 percent as of March 31, 2021), ICRA expects the public sector banks (PSB) to remain profitable going forward. After the capital raising exercises, the improved capital positions coupled with lower NNPAs mean a better solvency profile as well as an improved outlook on the ability to support growth and better future profitability.

“We believe that the banks are relatively better placed to handle the stress from the second wave and hence we continue to maintain a stable outlook on the sector.” the rating agency said.



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