Gross bank NPAs could reach 9.6-9.7% by end of March: report
As the impact of various relief measures, including a moratorium on loan repayments and the status quo on asset classification fades, banks’ gross non-performing assets could likely reach 9.6-9, 7% by March 31, 2021, according to a report.
According to Icra Ratings, banks’ GNPAs (gross non-performing assets) could worsen further to reach 9.9-10.2% by March 31, 2022. The rating agency, in a report, said despite the impact of the COVID-19 pandemic on borrowers’ debt service capacity, the new gross slippages for banks were well below Rs 1.8 lakh crore in the first nine months of fiscal 2020- 21 compared to Rs 3.6 lakh crore in fiscal year 2020.
This was motivated by various relief measures such as the moratorium on loan repayments, the status quo on asset classification and extended liquidity to borrowers under the secured emergency line of credit (GECL), indicated the agency. As the impact of these interventions wears off, pressures on asset quality are likely to resurface. We expect GNPA (excluding depreciation) to increase to 9.6-9.7% by March 31, 2021 and to 9.9-10.2% by March 31, 2022, compared to 8.6% at March 31, 2020, according to the report. .
As of December 31, 2020, banks’ GNPA and NNPA (non-performing net assets) stood at 8.3% and 2.7% as at December 31, 2020, compared to 8.6% and 3% respectively as at December 31, 2020. 31 March 2020.
Anil Gupta, business manager (financial sector ratings) at the agency, said while the asset quality and restructuring figures are encouraging, they do not reflect the underlying pressure on asset quality for companies. banks. The level of loans in the overdue categories increased after the lifting of the moratorium and the impact on asset quality will be spread over fiscal years 2021 and 2022, as various interventions and relief measures have prevented a significant one-time blow to the profitability and capital of banks, Gupta said.
The report, however, said that the net position of banks’ PNAs is expected to be relatively lower due to the significant arrangements banks have made on their old APMs. While the NNPAs are expected to increase slightly to reach 3.0-3.1 percent by March 31, 2021 (2.7 percent as of December 31, 2020 and 3 percent as of March 31, 2020), we expect that they will drop to 2.3-2.5% by March 31, 2022, the agency said.
With the fall in NNPAs and the improvement in the capital situation induced by a new capital increase during fiscal year 2021 as well as internal provisions which were amortized by a sharp drop in bond yields, the solvency position of banks is relatively better, which reinforces their loss. absorption capacities, he said. Public banks raised Rs 12,000 crore and private banks raised Rs 53,600 crore of equity from market sources in fiscal 2021.
In addition, the GoI also injected 20,000 crore rupees (0.3% of RWA) into public banks as part of its budgeted recapitalization for fiscal year 2021. The report states that recent changes in the valuation of Additional Tier 1 bonds (AT-1) could reduce the appetite of mutual funds for additional investments in these bonds.
Gupta said that, compared to the agency’s estimate for Level I capital requirements of Rs 32,800- Rs 43,100, which takes into account Rs 23,300 of AT-I bonds, where the call option expires in fiscal year 2022, the government has budgeted equity capital of Rs 20,000 crore for public banks for fiscal year 2022. In the event that AT-I markets remain dislocated short Ultimately, the government may need to increase the plan to recapitalize public banks, he added.