ICRA, on Tuesday, said the gross non-performing assets (GNPAs) of banks will be lower at 9.8 to 10.3 per cent by March-end 2021 vis-a-vis its earlier estimate of 11.3 to 11.6 per cent as it expects reduced slippages. This, in turn, could also reduce their capital requirements.

This assessment comes in the backdrop of the Reserve Bank of India (RBI) recently allowing one-time restructuring of individual and corporate loans.

The credit rating agency expects reduced slippage of 3 per cent to 4 per cent against the earlier projected slippage of 5.0 per cent to 5.5 per cent for banks during FY21.

Reduced capital requirements

ICRA emphasised that a lower slippage will also reduce the capital requirements for banks. The agency had earlier estimated capital requirements for PSBs (public sector banks) at ₹46,000 crore to ₹82,600 crore for FY21 and ₹25,000 and ₹48,300 crore for PVBs (private sector banks) during FY22.

ICRA’s broad estimates show that the capital requirements for PSBs could decline to ₹20,000 crore to ₹55,500 crore for FY21, and ₹22,000 crore to ₹33,400 crore for PVBs during FY22.

“PVBs may, however, raise capital higher than our estimates as their capital raisings are for next three years of growth cycle,” the agency said.

Tighter restructuring norms

Referring to the relatively tighter loan restructuring norms, ICRA sees the loan restructuring at 5 per cent to 8 per cent of the overall loans when compared to the proportion of loans under moratorium, which it expects to decline 10 per cent to 15 per cent of the overall system-wide loans by the end of Q2 FY21, from about 10 per cent to 60 per cent levels across various lenders during moratorium phase II (July-August 2020).

The loan restructuring norms include eligibility of only SMA (special mention account)-0 borrowers (principal or interest payment overdue between 1 to 30 days) as on March 1, independent credit assessment (ICA) of the resolution plans (RP), and a higher upfront provisioning requirements.

The system-wide SMA 1 (31-60 days) and SMA 2 (61-90 days) stood at about 6 per cent of the loan of the banks as on March 31. ICRA expects a large portion of these loans to be part of the moratorium loan book and will be most vulnerable to slippage in FY2021, as the RP under August 6circular cannot be implemented for these loans.

Anil Gupta, Vice-President, Financial Sector ratings, ICRA, said: “Of the estimated 10 per cent to 15 per cent loans under moratorium, we estimate the slippages for FY21 at 3 per cent to 4 per cent of the overall loans of banks (largely the SMA1 and SMA 2 pool as on March 31, 2020), 5 per cent to 8 per cent could be restructured, and the rest 2 per cent to 3 per cent is likely to result in an increase in overdue categories loans.”

Referring to the micro small and medium (MSME) loan restructuring scheme, which has been in place since February 2018 and saw about 2 per cent of the total MSME loans being restructured, ICRA said this reflects lenders’ careful approach towards restructuring.

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