Tag: credit growth

PNB eyes three-fold jump in bottomline at ₹ 6,000 cr in FY’22

Banking & Finance

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Punjab National Bank (PNB), the second largest public sector bank in the country, expects its bottomline in current fiscal to be atleast ₹ 6,000 crore, Ch S.S.Mallikarjuna Rao, MD and CEO has said.

This estimate is nearly three fold increase to the net profit of ₹ 2,022 crore recorded by the bank last fiscal.

“Last fiscal was a year of consolidation for us because of the amalgamation with two other banks. There were also Corona induced lockdown issues. This fiscal our conservative estimate is that bank will record net profit of not lower than ₹ 6,000 crore. This will, however, depend on the economy growing at 9.5 per cent as projected by RBI and Covid second wave impact getting eliminated by June 30”, Rao said at a press conference to announce the financial results for March quarter and entire FY’2020-21.

At the same time, Rao acknowledged that the ongoing first quarter was tough for the banking industry due to the impact of the second wave of the pandemic.

Credit growth

On the issue of credit growth, Rao said that he expects credit in the banking system to grow 8-10 per cent this fiscal and credit growth of PNB to be atleast 8 per cent. He highlighted that credit growth was very muted

Meanwhile, on the issue of PNB role in the proposed National Asset Reconstruction Company — which is expected to begin with take on board nearly ₹ 90,000 crore of stressed assets (NPA) from the banking system—Rao said that PNB has identified stressed assets worth ₹ 8,000 crore in bank’s book to be transferred to this asset reconstruction company. While public sector banks together are expected to pick up 51 per cent stake in the national ARC, Rao said that PNB shareholding will be less than 10 percentage points.

Rao said that he expected the proposed National Asset Reconstruction Company to be operational from July this year. “We are expecting everything to be put in place by June 30 and from July 1 onwards things will start functioning. The Indian Banks Association has already indicated this”, he said.

Capital mobilisation

To a question on capital raising, Rao said that the bank was adequately capitalised now (capital adequacy of 14.62 per cent after May QIP) and an assessment would be made after June quarter. “As of now we are not looking to come to market. There is some headroom in AT-1 bonds. Even there no decision has been made. There is no timeline at our end”, he added.

Last year, PNB had set for itself target of raising ₹ 14,000 crore of capital from the market comprising of ₹ 4,000 crore from Tier II bonds, ₹ 3,000 crore from AT-1 bonds and ₹ 7,000 crore from QIP. Already the bank has raised ₹ 3,994 crore out of ₹ 4,000 crore Tier II bonds, QIP raised in two tranches at ₹ 5,577 crore and AT1 bonds of ₹ 500 crore. In all, about ₹ 10,077 crore out of targeted ₹ 14,000 crore has been raised from the market by the bank.

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City Union Bank hopes to maintain better asset quality in FY22 amid second wave blues

Banking & Finance

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Leading old private sector lender City Union Bank hopes that FY22 will not be as bad as FY21 and credit growth this fiscal for the bank could be in the mid- to high-single digit if the economic environment and Covid second wave behaved like last year.

“Though the impact of the second wave is much higher in terms of infection and mortality, its impact on bank’s growth and other parameters may not be as bad as it saw in the first wave. I do not say that we will be seeing milk and honey flowing, but it looks like now things are not as bad as the same time last year,” N Kamakodi, Managing Director & CEO, told the Q4FY21 earnings conference call.

The bank’s credit growth in first wave hit-FY21 was 7 per cent and the slippage ratio to closing advances was at 3.01%.

He said the adverse impact of the second wave on the growth and slippages would definitely be there, but it may not be as bad as the first wave. FY21 almost ended like what we thought during the beginning of the year, and we hope FY22 will not be as bad FY21. It should be slightly better, he added.

At the same time, the total lockdown in three States particularly in Tamil Nadu where CUB has the bulk of its operations, the collection efforts are dampened and some impact on the collections are there. There are no property sale transactions as government registration departments are closed. Hence, the bank expects to see some spike, but overall slippages will be slightly better than FY21.

“We expect even though for the year as a whole the slippage may be slightly lower than whatever we saw in FY21, the slippages could be front loaded may be in the first one or two quarters and we will be seeing things getting eased up once the lockdown is removed,” Kamakodi said.

The bank expects its gross and net NPA to be lower than FY21 amid some quarterly spikes.

ECLGS scheme

In FY21, the major credit growth came from jewel loan and extension of facility to ECLGS scheme. Of the ECLGS scheme under ECLGS 1, 2, and 3, it disbursed ₹2,096 crore for an exposure of about ₹10,445 crore constituting about 5.63 per cent of the advances.

“We expect a further sanction of about ₹200 crore from ECLGS 3.0 scheme. The government guaranteed ECLGS scheme 1, 2 and 3, in fact most of the credit of MSMEs and also non-MSME sector and businesses have started generating surplus. This has also resulted in improving capital adequacy ratio as the disbursement to the ECLGS scheme attracts no risk weight and is guaranteed by the government,” said Kamakodi.

The total restructured portfolio for MSME account on March 31, 2021 stood at ₹1,849 crore and overall percentage restructured account constituted about 4.99 per cent.

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RBI Annual Report: Worst seems to be over for loan growth

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As per RBI’s annual report, banks’ credit-deposit ratio moderated to 72.4% in 2020-21 from 76.4% a year ago, largely reflecting the subdued credit demand conditions in the economy.

After hitting a three-year low of 5.1% in the first half of FY21, the credit growth gained pace from November 2020 as the economy started opening up after pandemic-triggered lockdowns. In its annual report for the nine-months ended March 2021, the Reserve Bank of India (RBI) said the worst was over for the credit growth.

The positive momentum in credit offtake since November 2020 reflected recovery in economic activity, which was further supported by the cumulative reduction in the policy repo rate. Loan growth of banks was impacted during the first half of the fiscal 2021 (H1FY21) and remained at three-year low of 5.1% till October, 2020, but it improved to 5.6% on a year-on-year (y-o-y) basis till March 2021.

“A gradual pick-up in the economic activity during the second half of 2020-21 pulled up credit growth,” the RBI said on Thursday. Going forward, accommodative liquidity conditions and interest rates, several growth enhancing measures announced by the government and commencement of the mass vaccination drive are likely to nurture the recovery, which, in turn, is expected to have a favourable bearing on credit demand and supply, the report said.

Among bank groups, public sector banks registered a non-food credit growth of 3.1% in March 2021, compared to 3.4% a year ago. However, the credit extended by private sector banks grew by 9.6%, compared to 13.9% a year ago.

In line with RBI’s view, many lenders are expecting better credit growth in the current financial year (FY22) on the back of economic recovery forecasts. For instance, State Bank of India (SBI) hopes to grow its loan book by 10% in FY22, despite less than 5% credit growth in FY21. After declaring March quarter earnings, chairman Dinesh Kumar Khara said, “The bank may register a credit growth of around 10% in FY22 as the bank’s credit growth is normally 1% above India’s GDP.”

As per RBI’s annual report, banks’ credit-deposit ratio moderated to 72.4% in 2020-21 from 76.4% a year ago, largely reflecting the subdued credit demand conditions in the economy.

During FY21, the slowdown in banks’ credit growth was broad-based across all major sectors, except agriculture. According to data on the sectoral deployment of bank credit, the loan growth to agriculture and allied activities accelerated to 12.3% in March 2021, compared to 4.2% a year ago. Credit to industry decelerated marginally to 0.4%,compared to 0.7% a year ago.

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Dull Demand: Drop in commercial papers issuances points to slowing credit growth at banks

Personal Finance

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The trend may well continue through the current quarter.

A year-on-year (y-o-y) drop in issuances of commercial papers in April 2021 may be hinting at a slowdown in credit growth at banks and non-banking financial companies (NBFCs). As financiers count the human toll the pandemic is taking on their companies, they have begun to restrict some areas of operations that require high contact such as disbursements and collections. The phenomenon is in turn playing out in the CP market as companies do not need as much funds as they would under normal circumstances.

According to data released by the Reserve Bank of India (RBI), CP issuances were to the tune of Rs 89,576 crore in April 2021, lower than Rs 1.33 lakh crore in April 2020. Interestingly, April 2020 was a month of nationwide lockdown, in contrast to the smaller lockdowns currently in effect across states.

Analysts are of the view that financial sector entities — both banks and non-banks — have turned cautious about the well-being of their employees now that a highly virulent strain of the Covid-19 virus is infecting people. So while it may still be early to determine the impact of the second wave on credit offtake, lending has taken a backseat, for sure. “Banks are concerned about their branch officials and NBFCs are also being careful about the safety of employees. So, disbursements are not where they would have normally been and the NBFCs’ fund-raising requirement is also lower,” an analyst tracking the financial sector said.

The trend may well continue through the current quarter. On May 3, Kotak Mahindra Bank MD & CEO Uday Kotak said the bank was ensuring that all its people work from home for the next one week, including those in the sales and collections verticals. This arrangement is to be monitored on a week-by-week basis.

The current wave of the pandemic has spread deep into India’s rural areas and financiers operating there are feeling the pain. Umesh Revankar, vice-chairman and MD, Shriram Transport Finance Company, told analysts on April 30 that the spread of Covid-19 in the hinterland has impacted the company’s staff and their relatives, resulting in lower productivity in the month of April and possibly in May as well.

The increasing digitisation of disbursements at NBFCs has taken some of the edge off the pain but other risks remain. On Monday, the Reserve Bank of India (RBI) warned that the impact of the second wave could manifest chiefly in the form of destruction of demand. Analysts have earlier flagged this risk in the financial system.

In a recent note, Emkay Global Financial Services had said it expects about 50-70% demand destruction for self-employed focused products and 25% for products geared to the salaried class during the lockdown. “Combined, banking credit could moderate by about 159 basis points (bps) to 9.3% in FY22. NBFC credit will similarly slow by 140 bps to 12.8%,” Emkay had said.

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Banks to see 15% plus credit growth in FY22-25 period: ICICI Securities

Banking & Finance

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India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned and confident to embark on the path of re-leveraging, according to ICICI Securities.

Indian financiers, too, have fortified themselves with ample liquidity/ capital buffer to tap the emerging opportunity, said research analysts Kunal Shah, Renish Bhuva and Chintan Shah.

They observed that Year-To-Date (YTD) growth of 2.2 per cent suggests bank credit growth in FY21 will settle upwards of 5 per cent (at least 3-4 per cent accretion is witnessed in February/March historically).

Post that, the analysts expect 9-10 per cent credit growth in FY22. Recovery in economic activity and derivative effect of increased investments and corporate/government spending on consumption will sustain the momentum of 15 per cent plus growth over FY22-25

Gold loans shine

In a report, ICICI Securities said Banks’ gold loan portfolio has seen 67 per cent compounded annual growth rate (CAGR) growth over the past 2 years and is also up 65 per cent YTD and 132 per cent YoY to ₹43,100 crore.

The report attributed this largely to focus of banks towards secured lending products post loan-to-value (LTV) relaxation.

NBFCs

The analysts said service segment credit (led by lending to non-banking finance companies/NBFCs and financial services) is now gathering pace – up 1.6 per cent YTD/8.4 per cent YoY.

Lending to NBFCs and financial services was up 2.6 per cent MoM/10 per cent YoY.

Loans to public financial institutions have jumped 79 per cent YTD/151 per cent YoY, while lending to housing finance companies (HFC) has shrunk 31 per cent YTD (flat YoY).

“This clearly shows banks’ lending preference more towards public institutions than HFCs.

“NBFCs, after having consolidated for almost 2 years now, significantly deleveraging the balance sheet by running down high risk profile assets, are now more confident to pursue growth opportunities in a risk-calibrated manner,” the analysts said.

Consequently, bank lending to NBFCs should stabilise in FY22 rather than decelerate like FY21.

Retail credit

Retail credit is now inching closer towards double-digit mark (6.7 per cent YTD/9.1 per cent YoY) – housing, credit card, vehicle have picked up buoyancy over the past couple of months, per the report.

It assessed that one of the key segments that has retraced faster than anticipated is credit card – outstanding up 5 per cent YoY, now up 7.6 per cent YTD building over almost 14 per cent YTD decline in May 2020.

ICICI Securities noted that despite strong real estate sales and spike in registrations in housing projects, there has not been much traction in housing portfolio till January 2021.3.7

Housing (including priority sector lending) is up 7.7 per cent YoY and 1.7 per cent MoM, while YTD growth stands at 5.9 per cent which is not significant considering the strong traction seen in real estate deals, it added.

Vehicle loans led by improved sales amidst festive demand is up 2.5 per cent MoM, 6.9 per cent YTD and 7.0 per cent YoY.

MSME sector

The report said the MSME (micro, small and medium enterprise) sector was under a prolonged downcycle of credit growth over the past few quarters.

The sector saw momentum July 2020 onwards, post the introduction of the Emergency Credit Line Guarantee Scheme (ECLGS) by the government as an aid to MSMEs, which were in trouble, it added.

Banks, in particular Public Sector Banks, extended full support to MSMEs which resulted in MSME credit book jumping 33 per cent in a period of seven months to ₹1.27 lakh crore from ₹96,000 crore in June 2020. In terms of YoY growth, it is up 19.1 per cent and up 20.5 per cent YTD.

The report said the agriculture sector is leading the credit growth momentum with 9.5 per cent YTD/10 per cent year-on-year (YoY) growth (1.8 per cent month-on-month/ MoM).

Industry credit

Industry credit is still lagging with YTD decline of 4.3 per cent (down 1.3 per cent YoY). However, downward trajectory in industry credit (particularly large industries) has been arrested since past three quarters and there is a marginal MoM uptick since November.

The analysts underscored that the key sectors that are deleveraging continuously include telecom and other infra, construction, metals and petroleum. On the other hand, textiles, chemical, plastics, paper products have gathered credit momentum.

“However, with revival in consumer demand and rise in government spending, we believe industry growth can emerge as a key driver for credit growth in coming years.

“We believe industry growth can emerge as a key driver for credit growth with 6 per cent growth in FY22 and 13-15 per cent growth over FY23-25,” the analysts said.

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Bank lending activity now stronger than last year; credit growth at 6.6% in February

Banking & Finance

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The credit growth of banks ranged between 6.5% to 7.2% in April 2020.

Banks gave out credit at a faster rate during the fortnight ending February 12, as compared to the same period last year, helped by an increase in retail loans. The bank credit growth was recorded at 6.6%, marginally higher from the 6.4% recorded last year, a report by CARE Ratings showed. With this, the credit growth is back in the range that was last seen during the early months of the pandemic. The credit growth of banks ranged between 6.5% to 7.2% in April 2020.

Bank credit growth strong

Bank credit during the fortnight ended February 12 stood at Rs 107 lakh crore, up from Rs 105 lakh crore at the end of December 2021 but at par with the previous fortnight ending January 29. “The retail, agriculture and allied segment have driven overall credit growth in January 2021 growing by 6.7% and 9.5% respectively,” the report showed. The retail segment accounted for 29% of the total credit, against the 28.1% share recorded in the year-ago period. Industrial segment, however, had the largest piece of the pie accounting for 29.6% of the total credit. The services sector accounted for 28% of the total.

“Trade and tourism, hotels and restaurant segment registered a (credit) growth of 15.7% and 8.9% respectively,” the report said. The professional services segment registered a de-growth of 25%, computer software segment too registered de-growth, making them the only two segment to slip.

Mutual fund redemptions aid deposit growth

Deposits with banks have also increased during the period under review. “Deposit growth increased during the fortnight ended February 12, 2021, compared with 11.1% growth registered during the fortnight ended January 29, 2021, and also as compared with the previous year,” CARE Ratings said. The report further added that the outflows in debt mutual fund and equity mutual fund could support the rise in bank deposits. Of these deposits, time deposits grew at 89% while demand deposits account for the remaining 11%.

With deposit growth outpacing credit growth in the banking system, liquidity remained in a surplus position. “The outstanding liquidity in the banking system as of February 26 aggregated Rs 6 lakh crore, higher than a month ago level of Rs 5.76 lakh crore,” the report said.

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Credit growth of banks picks up to 6.2% y-o-y in Dec

Banking & Finance

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Bank credit growth improved to 6.2 per cent year-on-year (y-o-y) in December 2020 from 5.8 per cent in the previous quarter, but it remained lower when compared with the 7.4 per cent growth recorded a year ago, according to the Reserve Bank of India (RBI).

In its statement on ‘Quarterly Statistics on Deposits and Credit of SCBs: December 2020’, the RBI observed that all population groups (that is rural, semi-urban, urban and metropolitan) recorded lower credit growth compared to a year ago.

Growth (y-o-y) in credit by private sector banks decelerated considerably to 6.7 per cent in December 2020 (13.1 per cent a year ago), whereas that of public sector banks improved to 6.5 per cent in December 2020 (3.7 per cent in December 2019).

Deposit growth

Aggregate deposits growth (y-o-y) of Scheduled Commercial Banks (SCBs) increased to 11.1 per cent in December 2020 (10.0 per cent a year ago), with all population groups recording double-digit growth.

Annual growth in current, savings and term deposits of SCBs stood at 13.0 per cent, 15.8 per cent and 8.2 per cent, respectively, in December 2020.

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Federal Bank aims ‘mid-teen’ growth in credit for FY22, BFSI News, ET BFSI

Banking & Finance

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Private sector lender Federal Bank is aiming for an acceleration in credit growth into “mid-teen” figures in 2021-22 on the back of an economic recovery, a top official said on Tuesday. Its Managing Director and Chief Executive Officer Shyam Srinivasan said the increase in virus infections in states like Maharashtra needs to be watched, but exuded confidence that it will not affect the overall economic activity, terming it a “minor blip”.

“We are looking at a credit growth in the mid-teens levels for 2021-22. If you look at the growth in the third quarter of 2020-21, it will come at an annualised level of 10 per cent,” he said.

Srinivasan said a majority of the loan segments will grow at over 20 per cent levels and a few like corporate will also grow around 10 per cent to achieve the credit growth target next fiscal.

While more headroom exists for growth in share of gold loans in the overall book, the portfolio growth will moderate to 20-30 per cent levels from the current 60 per cent levels, he said.

There are early signs of a revival in private capital expenditure which will boost the corporate loan growth, and the same will be more visible by the second half of the current calendar year, he said.

The bank is “fairly close” to the objective of having a 55:45 split in the loan book between retail and wholesale loans, and would like to maintain it the same way going ahead as well.

From an asset quality perspective, Srinivasan said everybody is looking forward to the Supreme Court judgment on the standstill in asset recognition and hinted that a clarity will help in recovery efforts.

A non-classification as an NPA (non-performing asset) does not create the pressure on the borrower through poor credit scores and also restricts the bank from enforcing all the recovery efforts till the asset is a notional NPA, he said.

The bank has made provisions of over Rs 1,200 crore to increase its provision coverage ratio and maintains that it will be meeting its targets on return on assets by end of 2021-22, he said.

The overall collection efficiency is back to the pre-COVID-19 levels of over 90 per cent, Srinivasan said. He added that upcoming state elections in Kerala, Tamil Nadu, West Bengal and Assam have affected the collection intensity as governments ask banks to go slow.

The bank is set to launch its credit card offering by the next month to complete its product suite, Srinivasan said. After starting with its own staff, it will offer the card to existing customers starting in April and will go to new to bank customers by the end of the year, he said acknowledging the competition intensity in the segment.

For its non-bank lending subsidiary Fedfina, the bank will await clarity on rules expected later this year, and then decide whether to take the company public or let its private equity partner True North increase its stake in the company, Srinivasan said. The non-banking financial company has sufficient capital to last through the current year, he added.



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Ind-Ra, BFSI News, ET BFSI

Banking & Finance

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India Ratings and Research (Ind-Ra) has revised its outlook on the overall banking sector to stable for FY22 from negative. This is because substantial systemic measures have reduced the system-wide COVID-19 linked stress below the expected levels. Banks have also strengthened their financials by raising capital and building provision buffers.

“Ind-Ra has upgraded its FY21 credit growth estimates to 6.9% from 1.8% and 8.9% in FY22, with the improvement in the economic environment in 2HFY21 and the government focus on higher spending especially on infrastructure. We estimate GNPA at 8.8% in FY21 (FY22: 10.1%) and stressed assets at 10.9% (11.7%). Provisioning cost has fallen from its earlier estimate of 2.3% for FY21 to 2.1%” said the agency in its report.

Key Findings

Private Sector Banks

  • The regulatory changes led to an improvement in public sector banks’ (PSBs) ability to raise AT I capital, a high provision cover on legacy NPAs, overall systemic support resulting in lower-than-expected COVID-19 stress.
  • Private Banks continue to gain market share both in assets and liabilities, while competing intensely with PSBs. Most have strengthened their capital buffers and proactively managed their portfolio.

Stressed Assets

  • Ind-Ra estimates that about 1.24% of the total bank book is under incremental proforma NPA and about 1.75% of the total book could be restructured by end-FY21.
  • Ind-Ra estimates that overall stressed assets (GNPA + restructured) could increase 30% for the banking system, the increase is almost 1.7x in the retail segment in 2HFY21.
  • The stock of stressed retail assets for PSBs could increase to 2.9% in FY22 from 2.1% in FY21, while it could increase from 1.2% to 4.3% for Pvt Banks.
  • Ind-Ra has assessed that stressed corporate assets as a percentage of gross bank credit declined to 15.3% at end-1HFY21 from 15.7% at end-FY20 (FY19: 17.2%, 1HFY19: 19.3%, FY18: 20.2%).

Provision Coverage Ratio

  • Excluding COVID-19 linked stress, Ind-Ra expects the provision coverage ratio (excluding technical write-offs) for both PSBs and Pvt Banks to reach 75%-80% by end-FY21.
  • The resultant provision cover is expected to be about 70% at end-FY21 and FY22, while the historic slippage rate will continue.
  • PSBs have 0.2%-0.5% provisions while Pvt Banks have 1%-2% covid provisions, most of which is unutilised.

The report further mentioned, “Under the Emergency Credit Line Guarantee Scheme, the GoI provided a guarantee to banks and NBFCs for extending funds to stressed MSMEs. Based on the progress seen till 25 January 2021, the funds sanctioned by banks under the scheme has totalled to INR1.98 trillion.” While Pvt Banks have been more adept at underwriting risk in the segment, they also have a higher share of unsecured retail assets where the borrowers have faced a disproportionate impact on their ability to service loans.

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Credit growth lags as banks chase recoveries, BFSI News, ET BFSI

Banking & Finance

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In the quarter-ended September 2020, the GNPA ratio of scheduled commercial banks improved to 7.7% against 9.3% in the year-ago period. India’s banking sector did see a decrease in its gross non-performing assets (GNPA) owing to the moratorium offered by the Reserve Bank of India (RBI) and due to recoveries and higher write-offs by the multiple banks.

State Bank of India has recoveries worth of Rs 4,038 crore and written off loans to the tune of Rs 5,617 crore. Likewise, ICICI Bank has recovered Rs 1,945 crore, written-off Rs2,469 crore.

Bank Recoveries
SBI Rs 4,038 cr
Bank of India Rs 1,172 cr
Bank of Baroda Rs 1,642 cr
ICICI Bank Rs 1,945 cr
Yes Bank Rs 1,000 cr
Bank Write-off
SBI Rs 5,617 cr
PNB Rs 4,555 cr
BoB Rs 2,553 cr
ICICI Bank Rs 2,469 cr
Axis Bank Rs 1,812 cr

On an overall basis public sector banks accounting for 75% share of GNPAs of SCBs (scheduled commercial banks) experienced a drop in the GNPA ratio to 9.3% in the Q2FY21 against 11.6% in Q2FY20 and 9.8% in Q3FY20.

However, CARE Ratings in its latest report stated that the GNPAs would have been around 0.5% to 0.6% higher had moratorium accounts been classified as NPAs.

Even RBI in it’s Financial Stability Report for July 2020 had warned that the asset quality of the financial system could deteriorate sharply, caused by the lockdown-induced disruptions to both supply- and demand-side factors.

Will lending improve in 2021?
As per the RBI’s weekly bulletin, bank credit deployment has already started to witness a decline. The credit growth decelerated to 5.8% and 5.7% during the last two fortnights, compared to last year’s level of 8.0% and 7.9%, respectively (as of November 22, 2019 and December 06, 2019).

Banks have been very selective with their credit portfolios. Sectoral deployment of bank credit has witnessed a downward trend in some crucial industries and sectors. Growth in bank credit to NBFCs declined mainly because of the base effect and risk aversion in banking system due to the COVID-19 pandemic. As for MSMEs, they did secure loans but at higher rates.

In an interview to ET Now, Suresh Ganapathy of Macquarie said, “Bank credit growth continues to languish, with similar trends observed in the NBFC space. There has been a fall in consumption demand, especially in home loans, auto and service segments; and decline in industry credit, primarily on account of risk aversion on the part of banks to lend to MSMEs.”

CRISIL expects the bank credit growth to plummet to a multi-decadal low of 0-1%. Krishnan Sitaraman, senior director at CRISIL, told ETBFSI, “This crisis is unprecedented and so will its economic fallout be, such as lower capex demand as well as lower discretionary spends, to name some. This slowdown credit offtake is significant across segments in the current fiscal. The corporate loan portfolio, which constitutes almost half of total credit, is expected to be the worst-hit, and de-grow this fiscal.” Hence, if the denominator (credit) doesn’t grow the fresh slippages will add to the NPAs, and the GNPA ratio will increase.

There is an improvement in the economy. GST and GDP numbers have shown some growth. The banks are seeing a rise in the credit applications but they are cautious. B Ramesh Babu, MD & CEO, Karur Vysya Bank told ETBFSI, “No one wants to press an accelerator button right now. Because how is it going to pan out no one knows. The current growth is a short term or long term no one knows. So wait and watch mode is preferable.”

Real picture is still awaited
The liquidity surplus in the banking system has increased in the week ended January 1, 2021 to Rs 6.21 lakh crore from Rs 5.09 lakh crore in the week ago period. As per RBI data, banks have maintained a liquidity surplus for the last 19 months. “This can be attributed to the inflow of bank deposits surpassing the outflow of bank credit. The incremental bank deposits (over March 20) have grown by 6.7% till December 18, 2020 as against the bank credit growth of 1.7%. With bank deposits outweighing bank credit flows, the banking system would continue to see a sizeable liquidity surplus in the current week, too,” said Kavita Chacko, Senior Economist with CARE Ratings.

The various liquidity infusion measures being undertaken by the RBI — OMO purchases and, the LTRO and TLTRO — have also added to the liquidity surplus.

Experts view that the performance of financial sector would remain under pressure on account of lack of credit uptake, risk aversion, lower fee income and covid-related provisioning. With the overhang of stressed assets continuing, banks will continue to focus on improving their collection efficiency and an immediate turnaround in lending activity seems unlikely.



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