Tag: pcr

Small finance banks (SFBs), which depended heavily on loan moratorium last year, are likely to be hit by delinquencies as Covid crimps the incomes of their mainstay borrowers.

However, they are inadequately prepared to face the barrage of asset quality issues that may hit them. In contrast, the top private sector banks are adequately prepared to face the crisis.

The provision coverage ratio, or amount set aside for bad loans, is less than 60% of total bad loans. for three listed banks—Equitas Small Finance Bank Ltd, Ujjivan Small Finance Bank Ltd and AU Small Finance Bank.

AU Small Finance Bank’s PCR fell to 50% in Q4 from 53% earlier, while Equitas Small Finance Bank, the most conservative among the SFBs, saw a 25% decline in the overall provision, compared with last year. Ut made additional provision to Rs 153 crore at the end of the fourth quarter.

Ujjivan Small Finance Bank’s PCR fell to 60% in the fourth quarter, from 80% in the year-ago period. The bank made a provision of Rs 170 crore as of March-end.

Private banks’ PCR

For HDFC Bank total provisions (comprising specific, floating, contingent and general provisions) were 153% of the gross non-performing loans as on 31 March 2021.

ICICI Bank had substantially increased its provision coverage ratio (PCR) to 86 per cent with pro forma PCR of 78 per cent, the highest in the industry.

Axis Bank’s provision coverage ratio, including write-offs, stood at 88% in the fourth quarter.

SLTRO boost

While the small finance banks did not get moratorium relief, the Reserve Bank of India (RBI) has announced a special long-term repo operation (SLTRO) for small finance banks. The central bank conducted the special operation of Rs 10,000 crore at repo rate, Das said.

“Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses,” Das said earlier this month announcing the relief measures.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI also has decided to allow the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.