A surge in Bad Loans
The pandemic had a toll on all the secondary and tertiary sectors of the economy. Post the second wave, a large number of banks and non-banking finance companies are facing challenges and bad loans are spiking as the rising stress across sectors is beginning to impact the repayment capacity of borrowers.
It has been estimated by the analyst that non-performing assets(NPAs) will jump from a little under 8% in the previous fiscal year.
NBFCs and microfinance institutions are reporting high surges in stressed assets. The RBI also warned about the possibility of a spike in bad loans to 13.5% of advances as of March 2021 as against 8.5% in March 2020. This is expected to cross double digits and hit 15% in 2021-2022, experts said.
Bandhan Bank, Bajaj Finance and recently Punjab National Bank have reported about stressed assets.
Bandhan Bank, reported an 80 per cent year-on-year fall to Rs 103.03 crore in net profit for the quarter ended March due to additional provisions on NPAs.
Bajaj Finance, in its mid-quarter update, estimated NPAs in Q1 and Q2 to be higher as lockdowns have affected asset quality.
Recently, Punjab National Bank (PNB) said: “The extent to which the COVID-l9 impact the bank’s results will depend on future developments, which are highly uncertain including among other things, the success of the vaccination drive. The major identified challenges for the bank would arise from eroding cash flows and extended working capital cycles.”
Small entrepreneurs in segments like salons and restaurants, taxi operators, merchants or tourism, hospitality, aviation, textile and high-contact sectors are among the worst affected sectors of the economy.
The weakened economy because of the pandemic is causing spikes in bad loans. Experts said A clearer picture will emerge once the Supreme Court acts on bad loans.