Tag: npa

Banks’ sigh relief as Supreme Court decides waiver of complete interest not possible, BFSI News, ET BFSI

Banking & Finance

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The Supreme Court of India in the extension of loan moratorium case has provided its verdict and the uncertainty over the actual stressed assets in the banking system will become more clear.

The Supreme Court noted that the scope of judicial review on economic policy decisions and policy decisions with affect on economy has to be considered. The apex court also noted that if only some sectors are not satisfied, court cannot intervene in such matters of policy.

Considering the reliefs independently the court decided that the complete interest is not possible as banks also have to pay interest to account holders and pensioners.

The court also noted that the it cannot be said the centre has not taken steps in the aftermath of Covid-19 pandemic and therefore petitioners will not be eligible for waiver of interest on interest, or demand extension of moratorium or sector specific reliefs.

On the waiver of interest on interest for loans upto Rs 2 crore, the apex court believes there’s no justification on the same.

The court also said that there shall be no interest on interest or compensation interest during the moratorium period irrespective of loan amount the same amount collected shall be refunded. If refund doesn’t seems possible the interest on interest collection can be adjusted in the next installment payable.

(The copy will be updated once the final judgement is out)



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FICCI-IBA survey, BFSI News, ET BFSI

Banking & Finance

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Asset quality of banks, which saw some improvement in the second half of 2020, is likely to worsen during the first six months of 2021, according to a survey.

The findings are part of the 12th round of bankers‘ survey carried out by FICCI-IBA between July and December 2020.

The survey was conducted on 20 banks, including public sector, private sector and foreign banks, representing about 59 per cent of the banking industry, as classified by asset size.

In the current round of the survey, half of the respondent banks reported a decline in NPAs during the second half of 2020. About 78 per cent of participating state-run banks have cited a reduction in NPA levels.

“However, in terms of outlook, nearly 68 per cent of respondent bankers expect the NPA levels to be above 10 per cent in the first half of 2021,” the survey showed.

Close to 37 per cent of respondents expect NPA levels to be upwards of 12 per cent.

The Reserve Bank of India’s Financial Stability Report, released in January this year, showed that gross non-performing assets (NPAs) of banks may rise to 13.5 per cent by September 2021, under the baseline stress scenario.

Some of the high NPA risk sectors identified by majority of respondent bankers in the current round of survey include tourism and hospitality, MSME, aviation and restaurants, the survey showed.

Around 55 per cent of respondents believe NPAs to rise substantially in the tourism and hospitality sector, while another 45 per cent reported that NPAs are likely to increase moderately in this sector.

Another high NPA risk sector reported in the current round of survey is the MSME sector, with 84 per cent respondents expecting an increase in NPAs in this sector.

Close to 89 per cent respondents also expect the restaurant sector to see an increase in NPAs, though only 26 per cent expect NPAs to increase substantially in this segment, it showed.

The survey revealed that there was a significant increase in the requests for one-time restructuring for MSMEs, announced by the RBI in August last year.

“An overwhelming 85 per cent of the respondent banks have cited an increase in requests for restructuring of advances as against 39 per cent in the last round,” it said.

The long-term credit demand has been growing for sectors such as infrastructure, pharmaceuticals and food processing, the findings showed.

“Particularly for the pharma sector, 45 per cent of the respondents have indicated an increase in long term loans in the current round of survey as against 29 per cent in the previous round,” it showed.

Over half of the respondents indicated that they did not avail funds under on-tap targeted long-term repo operations (TLTRO) while about 33 per cent said that TLTRO funds were deployed completely in securities issued by NBFCs/ MFIs, the survey showed.



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PSU banks NPAs drop Rs 1 lakh crore amid loan classification freeze, BFSI News, ET BFSI

Banking & Finance

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With banks not allowed to classify stressed assets as bad during the Covid pandemic period, non-performing assets (NPAs) of public sector banks fell by over Rs 1 lakh crore during the first nine months of the current fiscal to Rs 5,77,137 crore from Rs 6,78,317 crore.

According to the data, UCO Bank has seen the sharpest reduction of 40.7% in its NPA numbers in December 2020 from March 2020. This was followed by Bank of Maharashtra (33.6%), State Bank of India (21.4%) and Canara Bank (18.6%).

UCO Bank is under the stringent prompt corrective action framework of the Reserve Bank of India.

The government said that the reduction was due to its strategy of “recognition, resolution, recapitalisation and reforms”. The government said that its policy of transparent recognition of NPAs resulted in bad loans rising to a high of Rs 8,95,601 crore in FY18 from Rs 2,79,016 crore in FY15.

IBC approvals

Until September 2020, the Insolvency and Bankruptcy Code had led to the approval of 277 resolution plans with Rs 1.9 lakh crore of the realisable amount by financial creditors, it said in its response to the parliament.

The government has infused Rs 3.2 lakh crore in public sector banks in the last six years, with the banks themselves raising Rs 2.8 lakh crore through equity and bonds. Banks also raised an additional Rs 36,226 crore by selling non-core assets.

Future stress

On the projection in the Reserve Bank of India’s financial stability report that bank NPAs could rise to 13.5% by September 2021, the finance ministry said that according to the central bank, the numbers do not factor in the policy measures. These include RBI’s resolution framework for Covid-related stress and one-time restructuring of loans. In response to another query, the government said that 127 cases of fraud were assigned to the Serious Fraud Investigation Office. These pertained to 1,161 companies. Of these, 26 cases pertaining to 326 companies were reported in FY20. There were also 3,431 convictions and Rs 17.3-crore fine imposed during the last five years



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RBI dashes YES Bank’s plan to transfer Rs 50,000 cr NPAs to ARC, BFSI News, ET BFSI

Banking & Finance

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YES Bank‘s plan to get rid of its huge NPAs has come unstuck.

Its proposal to set up an asset reconstruction company (ARC) has been rejected by the Reserve Bank of India (RBI), according to reports.

The RBI cited a conflict of interest as many of the stressed loans of YES Bank are declared fraud cases that cannot be transferred to an ARC.

Its NPAs include Essel, Videocon, HDIL, DHFL which have been declared as cases of fraud, and under the rules such cases cannot be transferred to an ARC. An ARC would have taken huge NPAs off its books and helped in faster debt resolution.

Foreign interest in ARC

YES Bank had earlier said it was seeing interest from foreign firms keen to invest in the asset reconstruction company (ARC) it plans to launch to hive off soured loans worth Rs 50,000 crore.

“There has been a lot of interest from foreign investors for our ARC business. We are likely to put in initial capital of Rs 1,000 crore while the foreign investor will put in nearly Rs 2,500 crore,” Prashant Kumar, CEO of Yes Bank, had said.

YES Bank had applied to the Reserve Bank of India (RBI) for regulatory approvals in September to launch the ARC and Kumar said they believe they operationalize it within six months of securing clearances.

The lender, which was rescued last year after its financial health deteriorated significantly, had been placed under a moratorium by the central bank. The State Bank of India and several private lenders stepped in to infuse money into the lender and bail it out to address systemic risk concerns.

Precarious health

The bank’s gross NPAs reduced to 15.4% in the December quarter from 16.9% in September, NPAs could be close to 20%, taking into account the Rs 8,000 crore book the bank has restructured that could slip into NPAs. And that excludes another Rs 10,000 crore of loans that are stressed, but not classified yet as NPAs.

The total stressed loans and loans overdue for more than 30 days stand at Rs 28,000 crore, or about 16% of the loan book — in addition to the gross NPA of 15%. While all overdue loans of 30 dpd (days past due) and 60-90 dpd do not become NPLs, analysts remain concerned on the size of the loan book that is overdue.

The size of the net overdue loan book is Rs 25,500 crore (net of Covid provisions) and net worth of Yes Bank as of December 2020 is Rs 37,000 crore — roughly 70% of net worth.

The bank, however, is confident that further provisions can be made in the next few months. It has made a total of Rs 2,683 crore in provisions including a 15% provision on the SC mandated standstill accounts and a 10% provision on restructured loans.

Future plans

YES Bank intends to stay away from large corporate businesses as it looks to rebuild its loan book in the mid- and small-corporate segment.

The bank, like other lenders, saw increased stress in its retail segment, which had touched nearly 3% in this financial year compared with 1% during pre-coronavirus times, but feels things were improving.



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Saswata Guha, Fitch Ratings, BFSI News, ET BFSI

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We are pretty mindful of the fact that a fair degree of underwriting has been done by banks over the last three to four years in certain cases quite aggressively and some of that underwriting is probably yet to see the right kind of seasoning yet, says Saswata Guha, Director & Team Head, Fitch Ratings.

The gist of your report is that the impact of pandemic going forward is likely to pose challenges for the banking sector. You have said that not only credit cost will rise but even the NPA situation would get challenging. Most of the large banks say they have adequately provided for the challenges which lie ahead. What is your hypothesis for this space right now?
The hypothesis is primarily based on the premise that not everything that is arguably stressed is getting recognised at the moment as NPL, simply because there continues to be several forbearances in place as well as the judicial stay on some of the moratorium loans.

The number is roughly about 4% odd over and above the system’s NPL ratio which is roughly around 7%. But having said that, the 4% still does not account for the incipient stress including anything that is 30-60 days overdue and that is a number that has been on the rise quarter on quarter across the banks.

But more importantly, what it does not include are the several SME loans which have been refinanced under the various easy refinance schemes under the government’s relief measures and that cumulatively means that whatever the government is guaranteeing is just about 20% of the total exposure. The total exposure of those loans is roughly about 8.5% of the total system loans and when you start adjusting all of these into the number that we have at the moment, it is quite clear that at some point, whether it is easy liquidity condition or waning of some of the forbearances, it is likely to have an impact on asset quality. Whether that will manifest in the next financial year and whether some of it will get pushed further out because of forbearance measures being extended, we do not know, but it is quite clear that whatever banks are reporting while not being outside of our expectations, also does not present the full picture.

There is a race to bottom as far as home loans are concerned. Other consumer loans are also getting quite competitive. Meanwhile, fixed deposits rates etc also are in a race to the bottom. From here on, do you see rates hardening? How much do you see the additional borrowing cost for the NBFC universe? Will the banks face the same pinch?
Funding costs will be impacted. The declining funding cost trajectory has been a huge contributor to the fact that banks have continued to do well through a time of very limited growth. At some point, we do expect the funding cost to bottom out but if you were to consider the current liquidity situation, of which funding costs are a significant function, we expect that to continue at least for some more time, at least for a large part of this particular calendar year.

Any upward movement on the rate side will put pressure on the banks but what is important here is to also understand the inclination of the banks to lend now that it is being driven by two factors. One is credit demand itself which continues to remain reasonably subdued, at least as of now. The other of course is the bank’s ability to lend and in this situation, I have to call out the state owned banks which are constrained by virtue of the capitalisation.

Both of these factors are contributing to very limited credit supply. So without the inclination of banks to go out and lend in a meaningful way, it will not put pressure on the loan to deposit ratio which would therefore mean that banks might still have some headroom even after the rates start inching up for them, to be able to maintain their funding costs at low rates.

But quite clearly, what we have seen as of now is not sustainable because at some point we expect rates starting to inch up. You have raised a fairly valid point on retail credit and we have seen a fair bit of that and continue to see banks almost getting lock, stock, barrel into that space and trying to give out retail credit as much as possible.

It is quite possible that certain parts of retail credit, especially home loans, may prove to be a little more resilient than what we had expected initially and that was back in 2020 when things were very very uncertain. But there is also a large segment of unsecured credit cards within retail which are the usual suspects which we deem as vulnerable. You could also see vulnerabilities emanating on account of loan against property, loan against shares and some spaces which NBFIs dabble in a lot more than banks.

That is one space where we would see potential pressure in future. What is challenging with retail and to an extent even SMEs is that unlike large corporates which were pretty much the epicentre of the last asset quality cycle, it is very difficult to try and square in on an individual SME or an individual retail given how granular this portfolio is.

Banks would have to look at it on a portfolio basis but we are pretty mindful of the fact that a fair degree of underwriting has been done by banks over the last three to four years in certain cases quite aggressively and some of that underwriting is probably yet to see the right kind of seasoning yet. In times to come, clearly we will see some pressure and the litmus test of that portfolio.



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IOB, Central Bank on privatisation shortlist, may exit PCA, BFSI News, ET BFSI

Banking & Finance

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After IDBI Bank’s exit from Reserve Bank of India‘s prompt corrective action, chances of the other three lenders — Indian Overseas Bank (IOB), UCO Bank and Central Bank of India — to exit the stringent RBI norms have brightened.

According to reports, Indian Overseas Bank and Central Bank of India are among the four banks shortlisted by the government for privatisation. Bringing the banks out of PCA could boost their valuations in the event of privatisation.

The PCA status

All three banks under PCA Indian Overseas Bank, UCO Bank and Central Bank have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

Even after PCA exit, these banks may still be under RBI watch. In the case of IDBI Bank, which has committed to comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis, RBI has said the lender would be under continuous monitoring. “It has been decided that IDBI Bank be taken out of PCA framework, subject to certain conditions and continuous monitoring,” RBI had said.

Privatisation bid

Reuters had earlier reported quoting officials that the four banks on the shortlist are Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during Budget presentation last month.

IDBI Bank

IDBI Bank, which met the Reserve Bank of India’s parameters, was brought out of PCA. The government wants to sell its about 48% stake in IDBI Bank to strategic investors while the current promoter Life Insurance Corporation is also slated to pare its holding. LIC is planning to come out with an IPO and This will give the strategic investor a controlling stake in the bank

As on December 30, 2020, LIC held a 49.24 per cent stake in IDBI Bank while 45.48 per cent was with the central government.

How does PCA work?

PCA is based on the trigger points of CRAR (a metric to measure balance sheet strength), NPA and ROA, with three risk threshold levels (1 being the lowest and 3 the highest). Banks with capital to risk-weighted assets ratio (CRAR) of less than 10.25% but more than 7.75% fall under threshold 1. Those with CRAR of more than 6.25% but less than 7.75% fall in the second threshold. In case a bank’s common equity Tier 1 (the bare minimum capital under CRAR) falls below 3.625%, it comes under the third threshold level. Banks having a net NPA of 6% or more but less than 9% fall under threshold 1, and those with 12% or more fall under the third threshold level. On return on assets, banks with a negative return on assets for two, three and four consecutive years fall under threshold 1, threshold 2 and threshold 3, respectively.



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RBI pulls IDBI Bank out of the PCA framework, bank to resume normal lending, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) on Wednesday said IDBI Bank has been taken out of the prompt corrective action (PCA) framework after it found the state-run lender was not in breach of its rules on regulatory capital, bad loans and leverage ratio.

The Life Insurance Corporation of India (LIC)-owned lender has given the regulator a written commitment that it shall comply with the norms of minimum regulatory capital, bad assets and leverage ratio on an ongoing basis. Coming out of the PCA framework would allow the bank to resume it’s normal lending operations including corporate loans.

IDBI Bank was placed under the so-called PCA framework in 2017 over its high bad loans and negative return on assets, at a time when Indian lenders battled record levels of soured assets, prompting the RBI to tighten thresholds.

The RBI said that the performance of IDBI Bank was reviewed by the board for financial supervision (BFS) in its meeting held on February 18. After taking everything into consideration, it was decided that the bank be taken out of the PCA framework.

“It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, Net NPA and Leverage ratio. The bank has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments,” the central bank said.

IDBI Bank posted a net profit of Rs 378 crore in the third quarter (Q3) ended December 2020-21 (Q3FY21), aided by a rise in net interest income. This is the fourth consecutive quarter of profit for the lender. It had booked a net loss of Rs 5,763 crore in Q3 of 2019-20.

IDBI Bank had met three out of four key criteria needed to exit the prompt corrective action framework. IDBI Bank’s gross bad loan ratio, which was among the highest, has also eased in recent quarters, standing at 23.52% as of end-December.

  • Technically classified as a private bank after its takeover by LIC, IDBI Bank continues to struggle with recoveries from stressed corporate NPAs. However, with aggressive positioning, Net NPA ratio has improved to 1.94% against 5.25%.
  • Provision Coverage Ratio, a key financial parameter, improved to 97.08% in the third quarter from 92.41% in the previous fiscal
  • Its leverage ratio has also surpassed the 4% threshold and currently stands at 5.71%.

Its capital to risk-weighted assets ratio (CRAR), including counter cyclical buffer (CCB) stood at 14.77%, against the regulatory minimum of 11.5%. It’s return on assets (RoA) for Q3 stood at 0.51%. Retail loans accounted for 60% of the total loan book, with the rest being corporate loans. IDBI Bank’s total deposits rose 2.85% y-o-y to Rs 2.24 lakh crore at the end of December 2020. The share of current accounts savings accounts (CASA) in total deposits was 48.97% as on December 31, 2020.

However, shares of IDBI Bank have lost more than 50% of their value since RBI brought it under the framework in 2017. They have surged sharply since the federal budget in February on expectations New Delhi intends to sell its stake in the bank to help India’s depleted coffers.



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A year after moratorium, YES Bank limping back to normalcy, BFSI News, ET BFSI

Banking & Finance

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It’s been exactly a year since March 5 when YES Bank was put under moratorium and a rescue by fellow lenders was mounted. State Bank of India and several private lenders had stepped in to infuse money into the lender and bail it out to address systemic risk concerns.

From the pandemonium and panic among investors and depositors then, the bank has come a long way, now under the new management with the former promoter behind bars.

So how has been the journey?

Deposits

A year down the line the beleaguered seems to have regained the trust of depositors.

From a run on deposits, the bank has grown its deposit book by nearly 39% in this fiscal to Rs 1.46 lakh crore from Rs 1.05 lakh crore around the time moratorium was lifted. The surge in deposits was helped by a generous dose of lucrative rate offers. In December, YES Bank acquired 85,000 customers for current and savings account deposits. In July, the lender raised Rs 15,000 crore through a follow-on public offer, with participation from leading domestic institutional investors as well as foreign portfolio investors.

Asset quality

However, asset quality concerns are higher at YES Bank than other banks as it saw more than expected increase in non-performing and restructured assets, mainly due to stress in loans to the real estate and hospitality sectors.

But unlike in the past, there are no more big surprises in store.

Non-performing assets

In a post-earnings presentation on its website, YES Bank has said loans not classified as NPAs due to the Supreme Court stay, loans overdue for more than 60 days, and Covid-19 related advances add up to about Rs 18,551 crore —or 11% of the bank’s loan book of Rs 1.69 lakh crore.

The bank’s gross NPAs reduced to 15.4% in the December quarter from 16.9% in September, NPAs could be close to 20%, taking into account the Rs 8,000 crore book the bank has restructured that could slip into NPAs. And that excludes another Rs 10,000 crore of loans that are stressed, but not classified yet as NPAs.

The total stressed loans and loans overdue for more than 30 days stand at Rs 28,000 crore, or about 16% of the loan book — in addition to the gross NPA of 15%. While all overdue loans of 30 dpd (days past due) and 60-90 dpd do not become NPLs, analysts remain concerned on the size of the loan book that is overdue.

The size of the net overdue loan book is Rs 25,500 crore (net of Covid provisions) and net worth of Yes Bank as of December 2020 is Rs 37,000 crore — roughly 70% of net worth.

The bank, however, is confident that further provisions can be made in the next few months. It has made a total of Rs 2,683 crore in provisions including a 15% provision on the SC mandated standstill accounts and a 10% provision on restructured loans.

Core capital

Core equity capital of 13% helps YES Bank exceed the regulatory requirements. It raised Rs 14,267 crore through a follow-on issue in July. The bank’s board also approved an enabling resolution to raise Rs 10,000 crore.

Future plans

YES Bank intends to stay away from large corporate businesses as it looks to rebuild its loan book in the mid- and small-corporate segment.

The bank, like other lenders, saw increased stress in its retail segment, which had touched nearly 3% in this financial year compared with 1% during pre-coronavirus times, but feels things were improving.



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Crisil revises outlook on UBI debt instruments to ‘Stable’

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CRISIL Ratings has revised its outlook on the long-term debt instruments of Union Bank of India (UBI) to ‘Stable’ from ‘Negative’. The credit rating agency also reaffirmed its ratings on these instruments at either ‘AA+’ or ‘AA-’.

The revision in the outlook to ‘Stable’ factors in better-than-expected performance of the bank amid the current challenging macro environment, the agency said in a note.

CRISIL Ratings had assigned ‘Negative’ outlook on the long-term debt instruments on September 1, 2020 to reflect the potential stress that the bank’s asset quality and, consequently, profitability could witness on account of the challenging macro environment.

Profitability of the bank has witnessed an improvement with the bank reporting profit after tax (PAT) of ₹1,576 crore in the nine months ended fiscal 2021, against substantial loss of ₹6,614 crore in fiscal 2020, CRISIL Ratings said in a statement.

At the same time, provision coverage ratio (PCR) has also increased to 71 per cent as on December 31, 2020 (coverage on pro-forma gross non-performing assets/NPAs, excluding the Supreme Court dispensation on asset classification) from 68 per cent as on March 31, 2020.

The agency observed that the bank’s capital position has also strengthened, supported by raising ₹ 1,700 crore of Tier 1 bonds and ₹ 2,000 crore of Tier 2 bonds in fiscal 2021, so far.

As a result, the bank’s common equity tier (CET)-1 ratio, Tier-I capital adequacy ratio (CAR) and overall CAR improved to 9.2 per cent, 10.5 per cent and 13.0 per cent, respectively, as on December 31, 2020, from 8.6 per cent, 9.8 per cent and 12.1 per cent as on March 31, 2020.

CRISIL Rating underscored that overall, the asset quality has been supported by various schemes launched by the Government of India and the Reserve Bank of India (RBI).

“Nevertheless, Union Bank’s pro-forma gross NPAs remained high at 15.28 per cent as on December 31, 2020 (14.6 per cent as on March 31, 2020). Reported gross NPAs on the same date, was 13.5 per cent,” the statement said.

The agency said the one-time restructuring scheme is expected to benefit reported NPA metrics. The bank plans to restructure around 3 per cent of its advances.

CRISIL Ratings said the ratings continue to factor in expectation of strong support from its majority owner, the Government of India and its sizeable scale of operations. It also factors in the modest asset quality and earnings profile of the bank.

While economic activity has started picking up, any sudden surge in Covid-19 cases leading to partial lockdowns could negatively impact the collections, cautioned the agency. Hence, the bank’s asset quality and its consequent impact on earnings profile will continue to be closely monitored.

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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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