Slippages could rise for banks, recoveries gain pace in March quarter
Banks have been hoping that undeclared moratorium would be withdrawn as any further extension could lead to a distortion in repayment behaviour of borrowers
Mumbai: While Indian lenders are likely to see higher-than-expected slippages in the March quarter, now that the Supreme Court has lifted the stay on classification of bad loans, banks can now go ahead with their recovery plans and improve collections.
Banks have been hoping that undeclared moratorium would be withdrawn as any further extension could lead to a distortion in repayment behaviour of borrowers. According to the December quarter data, there exists a difference of about ₹1.2 trillion between the reported and the proforma bad loan numbers of 22 lenders. This means that at least ₹1.2 trillion of unreported soured loans will flow into the NPA category in Q4. That said, banks have already set aside provisions to cover future covid-19 losses, somewhat softening the blow.
Also Read | Lessons from India’s tryst with lockdown
“Banks are likely to see higher-than-normalized slippages in Q4 FY21 and recovery still appears to be uneven, particularly lagging in the small business, micro, small and medium enterprise (MSME), and microfinance segments," analysts at Kotak Institutional Equities said in a report.
However, with non-performing asset (NPA) tagging, banks can pursue recoveries more effectively leading to potential reductions in bad loans, it said.
The report said it continues to hold the view that large banks are likely to emerge with lower covid-19 impact given loan portfolios that are skewed towards salaried segments and relatively safer segments within small and medium enterprise (SME).
Large banks, it said, also generally hold higher covid-19 provisions and have stronger and granular revenue profiles, providing better stability in the event of fresh covid-related concerns.
According to analysts at Emkay Research, vacating the stay on NPA recognition is positive for retail and SME-heavy banks as it will open up the legal recourse and improve collection efficiency in the late overdue buckets, more so with renewed risk of the second covid-19 wave.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!