Banks gear up for asset quality deterioration as stricter lockdowns loom, BFSI News, ET BFSI
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Collection levels had already dropped to 10% for lenders and cheque-bounce rates had increased in segments like small and medium enterprises, commercial vehicles and microfinance.
Analysts see cheque bounce levels rise by another 3-4% while collection ratios dropping by nearly 5% in May alone
Cheque bounces are back to January 2021 levels after improving in March with Maharashtra, Madhya Pradesh, Punjab, and Telangana are seeing higher check bounce rates, HDFC Bank said in its Q4 results.
Dishonoured cheques in April (half-way through the month) have risen slightly, possibly due to some panic caused by worsening medical conditions,” HDFC said after its Q4 results.
Till the first week of April, the worst affected state was Maharashtra but now many states have been severely impacted by the fresh pandemic surge. NBFCs and small finance banks face a bigger hit.
Axis Bank too has said collections are likely to get impacted in the coming weeks and it was watching the situation closely.
No cover this time
Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.
As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.
In today’s conditions, there is no need for a moratorium,” RBI governor Shaktikanta Das said after the central bank’s monetary policy review. However, that statement was before the second Covid wave worsened.
RBI stress test
Bank NPAs may rise to 13.5% under the baseline stress test scenario by September, the highest in more than 22 years, according to the RBI’ financial stability report in January this year.
The gross bad loan ratio of banks which stood at 7.5% as of 30 September, could almost double to 14.8% under a severe stress scenario, RBI warned. Under the severe stress scenario, RBI has assumed a 7.6% economic contraction in the six months to 31 March and a tepid 3.8% growth in the first half of the next fiscal. However, uncertainty over vaccines and the severity of the Covid wave hobbles the 3.8% growth projection.
The last time banks saw such stress was in 1996-97 when the bad loan ratio rose to 15.7%.
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