The Reserve Bank of India in Mumbai has said that banks will need up to six and a half percent of their risk-defensive assets in its assessment of the impact of Covid-19 on lenders. Given that the total bank loan amount is Rs 104 lakh, the capital requirements will be more than Rs 1 lakh crore.
The preliminary estimates suggest that the potential re-funding requirements to meet regulatory objectives as well as growth rates could reach a level of 150 (100bps = 1 point) of the standard equity tier I (CET I) of the banking system. As per RBI the non-performing assets (NPAs) have decreased from 9.1% from March 2019 to 8.2% at the end of March 2020 and dropped to 7.5% at the end of September 2020.
However, the central bank said these bad loans figures did not reflect Covid’s pressure as the same was “hidden under the ashes of asset quality and financial stability impacts”.
If this had not been the case, the total NPAs would have been 0.10% to 0.66% higher from September 2020. In a report, the RBI said about 40% of lenders in India used the suspension of the six-month suspension, higher than estimates by analysts.
Among the lending groups that have extended the suspension, small finance banks and cooperative banks in cities with the highest share of lenders receiving 68% and 64% repayment payments respectively. Among other lenders, financial companies have a very large share with 44.9% lenders who prefer to defer their payments.
This was also followed by public sector banks (PSBs), with 41.3% lenders using suspension. Private and foreign banks have a very low share of 34% and 20% respectively.
The RBI had pointed out that in the case of PSBs, even though the government has budgeted 20,000 million rupees as restructuring funds, they still need to mobilize more resources in the market as a viable strategy of investment.
Sensibly, some major private corporate banks (PCBs) have already raised some money, while some of the larger PSBs have also announced plans to increase their resources, in the light of current market conditions. As a result of this increase, the capital level of risk-taking assets of banks has risen to 15.8% from the end of September 2020 from 14.7% from the end of March 2020, and 14.2% at the end of March 2019.
Most sectors have reported no lower interest rates under suspension in August 2020 compared to April 2020. However, small, medium and micro enterprises (MSMEs) have registered small increases and the number of MSMEs customers receiving suspensions has increased to 78 % in August 2020, indicating pressure on the sector.
The distribution of suspension requirements for MSME loans shows that the co-operative urban banks (UCBs) bear the brunt of the acquisition, followed by the PSB and the NBFCs.
