Second COVID wave to hit banks growth harder than asset quality: Analysts

The second wave of COVID-19 cases in India could represent a more serious danger to banks’ advanced development than to their asset quality, the analyst said. The degree and nature of lockdowns across states will affect credit development for banks and non-banks by around 140-160 basis points (bps), experts at Emkay Global Financial Services have said. Industry specialists expect the Reserve Bank of India’s (RBI) most recent round of help measures to support asset quality. 

As indicated by Emkay’s estimates, the affected states represent about 48% of retail credit and 56% of general credit. The independently employed classes will bear a significant part of the brunt of restricted lockdowns. “We gauge that inside retail resources (~31% of generally speaking credit), the independently employed classification represents almost a third – however the effect will to a great extent be limited to BL(business loans)/LAP (loans against property) and MFI (microfinance) portfolio,” the report said. 

Emkay Global Financial Services

Business vehicle (CV) advances are probably going to hold up well as goods transport stays unhindered. Most banks continued to stay invested in secured lending categories, especially mortgages. Shanti Ekambaram, group president – customer banking, Kotak Mahindra Bank, told investigators a week ago that home credits will keep on being a major space of center for the moneylender. “February and March were our best ever months in LAP, as well. This has customarily been a space where we have progressed admirably, both as far as the portion of the overall industry and credit quality and we will proceed to combine and develop our offer,” she said.

 Small and medium venture (SME) advances to face the greatest danger of the credit smash, as indicated by Emkay. The brokerage expects around 50-70% interest annihilation for independently employed focused products and 25% for the salaried class-oriented products during the lockdown. 

In the small enterprise and retail segments, specialists expect a spike in rebuilding without a ban like in FY21. India Ratings and Research said in a new report, “In the wake of these (RBI) gauges alongside the Emergency Credit Linked Guarantee Scheme (ECLGS), borrowers could hold over brief liquidity challenges, however, slippages in unviable resources could spread over FY22-FY25.” 

By end-February 2021, India Ratings estimates banks had authorized recasts worth Rs 2.46 lakh crore to beneficiaries. Additionally, Rs 45,000 crore of advances were rebuilt by end-March 2021. Non-banks, particularly those in the vehicle finance, mid–huge ticket LAP, and unstable business credit portions would utilize the new restructuring system, India Ratings said.


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