Credit rating agency ICRA expects Banks’ Gross Non-Performing Assets (excluding write-offs) to rise to 9.6-9.7 per cent by March 31, 2021 and 9.9-10.2 per cent by March 31, 2022 from 8.6 per cent as on March 31, 2020 as the impact of various Covid-19 pandemic related relief measures wanes off.

As the impact of various relief measures such as moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under Guaranteed emergency credit line (GECL) wanes off, the asset quality pressures are likely to resurface, the agency said.

In a note, ICRA observed that despite the impact of Covid-19 pandemic on debt servicing ability of borrowers, the gross fresh slippages for banks stood much lower at ₹1.8 lakh crore (2.7 per cent of advances on annualised basis) during 9M (nine months) FY2021 as compared to ₹3.6 lakh crore (4.1 per cent) during FY2020. This has been driven by various relief measures.

The agency assessed that despite a decline in the reported non-performing assets (NPAs) by banks as on December 31, 2020 as compared to March 31, 2020, the sizeable increase in their overdue loan book remains a monitorable as second Covid wave could impact the economic recovery.

The agency noted that even including pro forma Gross NPAs of ₹1.3 lakh crore (1.1 per cent of gross advances) and Net NPAs of ₹1 lakh crore (1 per cent of net advances), the GNPA and NNPA of the banks stood at 8.3 per cent and 2.7 per cent as on December 31, 2020 as compared to 8.6 per cent and 3 per cent, respectively, as on March 31, 2020.

However, this decline was driven by loan write-offs of ₹1.1 lakh crore (1 per cent of advances) during 9MFY2021, ICRA said.

Further, based on the restructuring guidance given by various banks, the overall volume of restructured advances is estimated at 1.3-1.5 per cent of the advances, much lower than ICRA’s initial estimates.

Anil Gupta, Sector Head – Financial Sector Ratings, ICRA Ratings said: “While the headline asset quality and restructuring numbers are encouraging, these don’t reflect the underlying stress on asset quality of banks.”

He underscored that the level of loans in overdue categories has increased after lifting of moratorium and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks.

Notwithstanding the rise in headline GNPA numbers, ICRA said the NNPA position of the banks is expected to be relatively lower because of significant provisions made by banks on their legacy NPAs.

Even on pro forma basis, Banks’ NNPAs were lower as on December 31, 2020 as compared to March 31, 2020.

While NNPAs are expected to rise marginally to 3.0-3.1 per cent by March 31, 2021 (2.7 per cent as on December 31, 2020 and 3 per cent as on March 31, 2020), ICRA expects these to decline to 2.3-2.5 per cent by March 31, 2022.

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