Tag: bank npas

Gross NPA of banks likely to cross ₹10 lakh crore by March 2022: Assocham-Crisil study

Banking & Finance

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Banks’ gross non-performing assets (GNPAs) are likely to exceed ₹10 lakh crore by March 2022, according to a recent Assocham-Crisil joint study released on Tuesday,

This study, “Reinforcing the Code,” conducted by The Associated Chambers of Commerce and Industry of India (Assocham) in collaboration with credit rating agency Crisil, highlighted that “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, as well as some restructured assets.”

“The effectiveness of the Insolvency and Bankruptcy Code (IBC) will be tested by the probable surge in NPAs, as a year-long moratorium on the filing of new insolvency cases ended in March 2021, and most pandemic-related policies or initiatives are unlikely to be continued,” said the report.

Stressed assets

According to the Assocham-Crisil study, the expected increase in GNPAs of both banks and non-banks this fiscal year as a result of the pandemic will provide an opportunity for players in the stressed assets market to resolve their debts through a variety of routes, with IBC likely to be the most popular.

While the proposed restructuring scheme for MSMEs and small debtors should keep NPAs from rising too much, stressed asset investors with experience and interest in these asset classes have an opportunity, according to the report.

The study also found that Indian banks’ risk management policies, particularly those of public sector banks, might be improved. Previously, laws were not in favour of lenders, allowing unscrupulous promoters to take advantage of the time-consuming recovery process. A significant number of bank wilful defaulters attests to this.

The RBI, on the other hand, has tightened the rules for such defaulters and made the rules for stressed asset resolution harsher. This, together with the IBC framework’s greater resolution of large-ticket NPAs, has resulted in improved NPA recovery.

According to the report, bank GNPAs have decreased since their high in March 2018 and were lower in March 2021 than in March 2020 due to supportive measures such as the six-month debt moratorium, emergency credit line guarantee scheme (ECLGS) loans, and restructuring measures.

The present asset quality stress cycle, according to the report, will be different from that of a few years ago. “NPAs largely came from larger, chunkier accounts at the time. Smaller accounts, particularly in the MSME and retail segments are projected to be more vulnerable this time than large corporations, which have significantly consolidated and deleveraged their balance sheets in recent years.

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Gross NPAs of banks likely to decline in FY21 amid MSME schemes, restructuring, write-offs: CARE Ratings

Personal Finance

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The year-on-year gross bank credit growth to MSEs in March had declined to its lowest level, amid the second Covid wave, since May in the financial year 2020-21.

Gross non-performing assets of banks are likely to decline in FY21 due to restructuring, write-offs, and resilience in the economy, rating agency CARE Ratings said on Wednesday. The decline is expected as several regulatory and government support schemes for MSMEs and others had helped borrowers to access liquidity and conserve cash flows. For instance, the moratorium on loan repayments for six months till August 30, 2020, Covid-related restructuring scheme for MSMEs till March 31, 2021, and for large corporates till December 31, 2020, Resolution Framework 2.0 scheme for personal loans and MSMEs till September 30, 2021, ECLGS to enable banks and NBFCs provide funding to MSMEs, TLTROs, special refinance facilities to NABARD/SIDBI/NHB to address sectoral credit needs, and extended partial guarantee scheme, the agency noted.

“The government had enabled loan of up to 20 per cent of an MSME’s total outstanding credit in the Rs 3 lakh crore ECLGS scheme. So, loans were guaranteed by the government and MSMEs got significant breathing space with immediate cash flows being taken care of so that they may not default and deteriorate their credit score, etc. Given that MSMEs generally have a significant share of NPAs, now that share will be much more muted than what we would have expected otherwise,” Sanjay Agarwal, Senior Director, CARE Ratings told Financial Express Online.

Gross NPAs had jumped by 43.7 per cent from Rs 7.1 lakh crore in March 2017 to reach Rs 10.2 lakh crore by the end of March 2018 following which the NPAs witnessed moderation and reached Rs 8.9 lakh crore by end of March 2020, the report said. The asset quality pressure witnessed by the banks over post asset quality review (AQR) had been reducing in a couple of years prior to Covid. The movement in gross NPA had declined to Rs 9 lakh crore in FY19 and to Rs 8.9 lakh crore in FY20.

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Despite a challenging year (FY21), the quantum of gross NPAs of scheduled commercial banks (SCBs) is expected to decline by the end of March 2021 as compared with the previous year due to write-offs, lower slippage, restructuring schemes, and ECLGS support for MSMEs, the agency said in the report. However, as anticipated with the Supreme Court judgment allowing for the recognition of NPAs, FY21-end numbers are expected to be either similar or slightly above the Q3 FY21 numbers, it added. “Slippages are largely from MSMEs in retail. MSME slippages have been reduced because of the ECLGS,” added Agarwal.

The FY21 gross NPAs is estimated to settle at Rs 7.9 lakh crore, according to CARE Ratings. While public lenders’ gross NPA amount is expected to be around Rs 6.0 lakh crore at the end of March 2021 vis-à-vis Rs 6.8 lakh crore at the end of March 2020, for private lenders, the gross NPA amount increased from Rs 1.8 lakh crore in March 2018 to over Rs 2 lakh crore in December 2019. However, it is subsequently expected to have retreated to around Rs 1.96 lakh crore by the end of March 2021.

Moreover, write-offs’ share in gross NPAs has markedly increased post FY18, indicating that SCBs have cleaned their books taking a hit and recoveries have had a smaller share of the same, the agency said. “MSMEs right off every quarter by all banks has been very significant because the government had given quite a lot of equity and banks had made a lot of provisions. Now they have written off against the provisions. So it doesn’t reflect in the profit and loss statement but writes-offs are very significant,” said Agarwal.

Importantly, the year-on-year gross bank credit growth to MSEs in March had declined to its lowest level, amid the second Covid wave, since May in the financial year 2020-21. The credit outstanding as of March 26, 2021, was Rs 11.07 lakh crore – up only 2.5 per cent from Rs 10.8 lakh crore in March 2020, according to the RBI’s monthly bulletin. Moreover, the share of MSEs in India’s overall gross bank credit also continued to decline for the third straight month. From 12.11 per cent in December 2020, the MSE share contracted to 12.09 per cent in January 2021 and 11.8 per cent in February before slipping further to 11.3 per cent in March. The overall gross bank credit as of March 26, 2021, stood at Rs 97.2 lakh crore.

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Bank NPAs may rise by Rs 2 lakh crore in March quarter, face Rs 30,000 cr provisioning, BFSI News, ET BFSI

Banking & Finance

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The Supreme Court‘s lifting of the stay on classifying overdue loans is not only set to add to a sizeable chunk to banks’ non-performing assets, but hit their balance-sheet substantially.

In absence of a standstill by the Supreme Court, the GNPAs for the banks would be higher by Rs 1.3 lakh crore (1.2%) and net NPAs would have been higher by Rs 1 lakh crore (1%), according to estimates by ICRA.

However, the Icra estimates exclude the stressed loans recommended by K V Kamath panel for restructuring. The Kamath panel has suggested certain norms for restructuring loans in 16 sectors most hit by the pandemic and banks are in the process of identifying such loans. While the restructuring of such loans has to be done June 2022, the RBI may ask banks to recognise these loans as NPAs in the March quarter itself, which may raise the bank NPAs to Rs 2 lakh crore.

Also, banks will need to provide about Rs 30,000 crore for the newly added soured loans as per the norms. They need to provide 15% in the first year and the rest over three years.

Interest booked

Banks follow the accrual method of accounting and in the absence of the NPA tag, they were booking interest on these loans, even though the money was not coming into their accounts. With these loans now classified as NPAs, banks have to reverse the interest they have booked, which may lead to Rs 10,000 crore hit for them.

Silver lining

However, most banks have made provisions on proforma NPAs, which they will be allowed to write back. This will not lead to any large impact on the balance-sheets of most lenders. Also, proforma NPAs are falling, while the provision coverage ratio has improved by an average of 300 basis points to over 70% for private banks and above 65% for public sector banks in the same period.

The proforma numbers

Following the Supreme Court (SC) stay order, banks have not tagged overdue loans as NPAs since August 2020. However, they have been listing such loans as portfolio-level proforma NPAs and making provisions for them.

Compound interest hit

Banks may have to take a hit of Rs 7,500 crore after the Supreme court extended the compound interest relief to loans above Rs 2 crore.

As per Icra, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The government had already announced relief for borrowers having loan up to Rs 2 crore which was estimated to cost about Rs 6,500 crore to the exchequer. If the government takes the burden of Rs 7,500 crore on compound interest relief for large borrowers above Rs 2 crore, banks will be relieved to that extent.



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Pro forma gross NPAs of 17 banks estimated to be Rs 7 lakh crore

Banking & Finance

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Similarly, among the PSBs, State Bank of India reported highest pro forma NPAs of over Rs 16,000 crore.

By Ankur Mishra

Seventeen banks are likely to have ratcheted up bad loans to the tune of Rs 7 lakh crore on a pro forma basis during the December quarter (Q3FY21). These 17 lenders had disclosed pro forma gross non-performing assets (GNPAs) this quarter due to the Supreme Court’s (SC’s) interim direction for standstill on fresh NPAs. Of Rs 7 lakh crore, these lenders have reported GNPAs of Rs 5.95 lakh crore in the current quarter without counting any fresh slippages. This implies Rs 1.04 lakh crore of bad loans in the system, which is yet to be recognised by the banks. The apex court had earlier directed lenders not to classify fresh non-performing loans from August 31, 2020, till further orders.

While the top six public sector lenders have reported the majority of pro forma NPAs at Rs 5.12 lakh crore, the 11 private lenders have reported pro forma bad loans at Rs 1.88 lakh crore, with Yes Bank reporting the highest among private sector lenders at over Rs 8,000 crore. Similarly, among the PSBs, State Bank of India reported highest pro forma NPAs of over Rs 16,000 crore.

Anil Gupta- sector head, Financial Sector Ratings, Icra, said the asset quality pressures for banks were likely to continue over the next few quarters as the impact of various measures such as emergency credit line guarantee scheme (ECLGS) and the six-month moratorium wanes. “The performance of loans where disbursements have been done under ECLGS will be monitorable apart from the exposures towards working capital borrowings where the funded interest is required to be repaid by March 31, 2021,” he said. The Reserve Bank of India had earlier granted moratorium of six months to borrowers from March 1, 2020. The banking regulator had also permitted lending institutions to convert the accumulated interest on working capital facilities over the total deferment period of six months into a funded interest term loan, which can be fully repaid during the course of the financial year 2021 (FY21).

Care Ratings senior director Sanjay Agarwal said, “We may see some increase in the gross NPA figures of banks in the next quarter, but overall it is likely to be lower than our estimate of 11-11.5% by the end of FY21.” It also depends on the path economy is going to take now, he added.

Last week, RBI had projected India’s gross domestic product (GDP) to contract by 7.7% in the current fiscal (FY21), but expects it to rebound at 10.5% in FY22. Veena Sivaramakrishnan, partner, Shardul Amarchand Mangaldas, said, “The worst in terms of Covid-19 impact is hopefully behind all of us. But the asset quality problem is not the one of pandemic alone.” For the asset quality to improve, there needs to be discipline among the corporates and tightening of lending practices, both of which are changing the ‘set in stone practices’ to a great extent, she added.

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