Banks’ gross nonperforming assets (NPAs) can rise to 9.6-9.7% by the end of March, according to a study

According to a survey, as the effect of various relief initiatives, such as a moratorium on loan repayment and an asset classification halt, wears off, banks’ gross non-performing assets may rise to 9.6-9.7% by March 31, 2021.

Bank GNPAs (gross non-performing assets) may worsen to 9.9-10.2 per cent by March 31, 2022, according to Icra Ratings. Even after the effects of the pandemic on borrowers’ debt-servicing ability, the rating agency announced in a study that gross fresh slippages for banks were much lower in the first nine months of fiscal 2020-21, at Rs 1.8 lakh crore, compared to Rs 3.6 lakh crore in the previous fiscal year.

According to the organisation, various relief initiatives, such as a moratorium on loan repayment, a halt on asset classification, and liquidity provided to borrowers under the Guaranteed emergency credit line (GECL), have contributed to this. Asset quality pressures are likely to resurface as the effect of these measures fades. From 8.6% on March 31, 2020, we expect GNPAs (excluding write-offs) to increase to 9.6-9.7% by March 31, 2021, and 9.9-10.2 per cent by March 31 2022, according to the survey.

While the benchmark commended and restructuring numbers are encouraging, they do not reflect the underlying stress on bank asset quality, according to Anil Gupta, sector head (financial sector ratings).

According to Gupta, the number of loans in overdue categories has risen since the moratorium was lifted. The effect on asset quality will be spread out over FY2021 and FY2022 due to various interventions and relief measures that have avoided a significant one-time hit on bank profitability and resources.

However, due to banks’ substantial provisions on their legacy NPAs, the net NPA position of the banks is expected to be relatively lower, according to the study.

The solvency situation of the banks is relatively stronger, offering some comfort to their loss absorption capacity, it said, with the decline in NNPAs and strengthened capital position led by fresh capital raises during the financial year 2021 as well as internal accruals that were buffered by a sharp decline in bond yields.

During the financial year 2021, public banks raised Rs 12,000 crore, and private banks raised Rs 53,600 crore in equity capital from market sources.

Besides, as part of its budgeted recapitalization for the financial year 2021, India’s government injected 0.3 per cent of RWA, Rs 20000 crore, into public banks. According to the study, recent changes in the valuation of additional tier 1 (AT-1) bonds can reduce mutual funds’ appetite for additional investments in these bonds.


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