Experts see a new surge in problem loans, which could grow to 13-15% this fiscal year

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With a number of large banks and non-bank finance companies facing new challenges stemming from the second wave of Covid, a new surge in problem loans is projected as rising tensions across all sectors begin to affect borrower solvency.

Analysts estimate that problem assets (NPA) will grow from just under 8 percent in the previous fiscal year – helped by restructuring, write-offs and regulatory easing, including a loan moratorium – to 13-15 percent in 2021-22. …

NBFCs and microfinance institutions (MFIs) report sharp increases in distressed assets. “Small entrepreneurs working in segments such as salons and restaurants, taxi operators and traders / traders of minor categories were hit hard and there was no specific income support for these target groups. This category has seen an impressive increase in the number of NAPs, ”a senior private sector banker said addressing Indian express on condition of anonymity.

“Since revenues have not been recovering for over a year, we have no choice but to make significant cuts and write-offs,” the banker said.

Bandhan Bank, for example, reported an 80% decrease in net income for the quarter ended in March compared to the same period last year to Rs 103.03 crore due to additional NAP provisions. The microenterprise lender increased its total defaults as a percentage of total loans by 533 basis points to 6.81% in Q4 FY21 from 1.48% in FY2020.

Bajaj Finance, in its recent mid-quarter report, rated the NPA in the first and second quarters as higher as the April-May blockages impacted asset quality. “The second wave caused a slight increase in EMI failure rates in the first quarter of fiscal year 22 compared to the fourth quarter of fiscal year 21. Direct flows on overdue items were higher due to collection restrictions amid stringent restrictions in most parts of India. As a result, the company estimates its total and net NPA in Q1 and Q2 as higher, “the stock exchange said in a June 4 statement.

In its latest notes to the financial accounts dated June 4, the National Bank of Punjab (PNB) reported: “The extent to which COVID-19 pandemic will affect the bank’s results, will be subject to future events, which are highly uncertain, including, but not limited to, the success of the vaccination campaign. The main problems identified for the bank will arise as a result of reduced cash flows and an increase in working capital cycles ”.

Tourism, hospitality, restaurants, salons, aviation, construction, textiles and highly skilled services are among the most affected segments. Care Ratings predicts NPA will account for 7.3 percent (Rs 7.93 million) advances as of March 2021, up from 8.5 percent (Rs 8.86 million) in March 2020. 2021-22, experts say.

The Reserve Bank of India also warned of the possibility of a surge in bad loans to 13.5 percent by September 2021 from 7.5 percent in September 2020. This amounts to Rs 14.6 million out of a total bank loan of Rs 108.33 million. crore.

“It’s difficult to give a figure given the moratorium and various bank schemes, but underlined assets are valued in double digits (13-15 percent),” said Tarun Bhatia, managing director and head of business intelligence and investigations at Kroll. South Asia.

“It is necessary to see how companies that paid part of their contributions (perhaps 1 or 2) are ranked compared to those who opted for a moratorium. In addition, due to the second wave, a significant part of those who chose the moratorium will continue to fight, ”he said.

“Thus, the ability of banks and NBFCs to physically collect contributions in the current environment may be limited, even if borrowers are able to make payments. Given lost income or lower earnings, paying off unsecured loans may not be a high priority for many borrowers, ”said Ramia A. Muraledharan, director of ratings at Brickwork Ratings.

According to experts, a clear picture will emerge when the Supreme Court decides on bad loans. “After the Supreme Court ruled to lift the moratorium on asset classification, banks and the NBFC must record cumulative non-payments on actual days of delay from the 4th quarter of the 21st fiscal year. As a result, in our opinion, transparency has increased. in reporting on GNPA indicators for the 4th quarter of 21st and 21st fiscal years, ”Muraledharan said.

According to Care Ratings, pressure on asset quality is expected to continue due to restructuring, especially in the MSME segment. “Retail loans, especially unsecured loans, are also expected to face severe stress. The inverse risks include the isolation of key states, which can affect the industrial segment as well as the service segment. Another risk includes the termination of the ECLGS scheme in June 2021, which supported lending to MSMEs, ”it said.

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