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The over 90 days past due (DPD) position of banks and non-banking financial companies (NBFCs) indicate much higher overdue levels in the micro, small and medium enterprise (MSME) sector than in the retail sector, even with the camouflage of regulatory reliefs, according to the Reserve Bank of India’s Financial Stability Report (FSR).
Ninety DPD refers to payments that are late by more than 90 days. Such borrowal accounts get classified as sub-standard, necessitating provisioning by banks and NBFCs.
The 90 DPD balances for MSME sector increased from 11.7 per cent in March 2020 to 12.5 per cent in June 2020. This, however, declined to 12 per cent in September 2020.
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The 90 DPD position for the retail sector has moved up from 3.2 per cent in March 2020 to 3.4 per cent in June 2020. It edged up further to 3.5 per cent in September 2020.
“The 90 days past due position has remained stable (in the case of the consumer/ retail credit) but may not reflect the real vulnerability of the portfolio, in view of the regulatory reliefs granted following the pandemic,” the report said.
Wholesale exposure
An examination of the transition of a constant sample of non-public sector undertaking (non-PSU) non-financial wholesale performing exposures to special mention account (SMA) status between August and November 2020 reveals accumulation of outstanding in SMA-0/1/2 categories, although the aggregate outstanding has remained flat, the report said.
‘SMA-0’ classification means principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress. ‘SMA-1’ classification means principal or interest payment overdue between 31-60 days. ‘SMA-2’ classification means principal or interest payment overdue between 61-90 days.
“Admittedly, the asset classification standstill inhibits the true underlying economic categorisation of assets, although the incipient tilt is towards worsening, as indicated by the growth in balances in the next worse categories for each cohort,” FSR opined.
Corporate funding
The report observed that domestically, corporate funding has been cushioned by policy measures and the loan moratorium announced in the face of the pandemic, but stresses would be visible with a lag. This has implications for the banking sector as corporate and banking sector vulnerabilities are interlinked, it added.
FSR underscored that: “While the post-global financial crisis prudential measures have ensured stronger capital buffers in the banking sector, which have stood banks in good stead in the face of the pandemic, the imminent crystallisation of financial stress may test their resilience, especially for individual banks which, in turn, can have systemic implications.”
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