Tag: gross non-performing assets

India Ratings and Research (Ind-Ra) has revised its outlook on the overall banking sector to stable for FY22 from negative.

The credit rating agency estimated that overall stressed assets (gross non-performing assets/GNPA + restructured) could increase 30 per cent for the banking system, with the increase being almost 1.7 times in the retail segment in the second half (October 2020 till March-end 2021) FY21.

Also read: States’ fiscal deficit to moderate to 4.3% of GDP in FY22: India Ratings & Research

The agency estimates gross non-performing assets (GNPAs) at 8.8 per cent in FY21 (FY22: 10.1 per cent) and stressed assets at 10.9 per cent (11.7 per cent).

Along with revision in outlook, Ind-Ra has upgraded its FY21 credit growth estimates to 6.9 per cent from 1.8 per cent and 8.9 per cent in FY22, with the improvement in the economic environment in 2H FY21 and the government of India’s (GoI) focus on higher spending, especially on infrastructure.

Referring to the revision in outlook, Ind-Ra observed that the substantial systemic measures have brought the system-wide Covid-19-linked stress to below expected levels.

Further, banks have also strengthened their financials by raising capital and building provision buffers.

According to its assessment, provisioning cost has fallen from the earlier estimate of 2.3 per cent for FY21 to 2.1 per cent (including Covid-19-linked provisions); it is estimated at 1.5 per cent for FY22.

Outlook for PSBs

Ind-Ra

revised the outlook on public sector banks (PSBs) to Stable for FY22 from Negative.

The agency reasoned that regulatory changes led to an improvement in the ability of PSBs to raise Additional Tier (AT) I capital, a high provision cover on legacy NPAs, overall systemic support resulting in lower-than-expected Covid-19 stress, and minimal surprises arising out of amalgamation of PSBs.

Also, the fact that the GoI has earmarked ₹34,500 crore for infusion in PSBs in 4Q (January-March) FY21d should suffice for their near-term growth needs.

Outlook for private banks

Ind-Ra

said the outlook remains Stable for private banks, which 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 portfolios. As growth revives, large private banks would benefit from credit migration due to their superior product and service proposition,” the agency said in a note.

Stressed assets

According to Ind-Ra’s estimates, stressed assets will rise 30 per cent in 2HFY21 and 8 per cent in FY22.

The agency estimates that about 1.24 per cent of the total bank book is under incremental proforma NPA and about 1.75 per cent of the total book could be restructured by end-FY21.

“As a conservative measure, the agency has not adjusted for overlaps between those categories. This is the incremental stress purely on account of the Covid-19 pandemic and does not include the slippages that banks would witness in the normal course of business,” said the note.

Also read: Lenders remain risk averse to additional lending or alter lending terms: Ind-Ra

Ind-Ra estimated the stock of stressed retail assets for PSBs could increase to 2.9 per cent in FY22 from 2.1 per cent in FY21, while it could increase from 1.2 per cent to 4.3 per cent for private banks.

Provisions

Excluding Covid-19-linked stress, Ind-Ra expects the provision coverage ratio (excluding technical write-offs) for both PSBs and private banks to reach 75 per cent-80 per cent by end-FY21.

“If we consider the provision on proforma gross NPAs (still not considering Covid-19 provisions), the resultant provision cover could be about 70 per cent at end-FY21 and FY22, while the historic slippage rate will continue and banks would still have Covid-19 provisions as buffers.

“PSBs have 0.2 per cent-0.5 per cent provisions while private banks have 1 per cent-2 per cent Covid-19 provisions, most of which is unutilised,” the agency said.