Money & Banking

Indian banks’ NPLs to spike to 13-14% of total loans, warns S&P

Our Bureau Mumbai | Updated on June 30, 2020 Published on June 30, 2020

The Covid-19 pandemic may set back the recovery of India’s banking sector by years, which could hit credit flows and, ultimately, the economy, warned S&P Global Ratings.

The global rating agency expects non-performing loans (NPLs) in India to hit a fresh high, raising credit costs, and putting pressure on ratings.

“In our base case, we expect the non-performing loans to shoot up to 13-14 per cent of total loans in the fiscal year ending March 31, 2021, compared with an estimated 8.5 per cent in the previous fiscal year,” credit analyst Deepali Seth-Chhabria, said in a report titled “Covid And Indian Banks: One Step Forward, Two Steps Back” published by S&P Global Ratings.

Moreover, the resolution of these bad-debt situations will likely unfold slowly, which means banks may also be saddled with a huge stock of bad loans next year. “We assume only about a 100 basis-point improvement in NPLs in fiscal 2022 (year ending March 31, 2022),” she opined.

S&P Global Ratings credit analyst Geeta Chugh believes that the effect on finance companies will be more pronounced than on banks.

“Some finance companies lend to weaker customers and have high reliance on wholesale funding.

“These companies were already facing a trust deficit since the 2018 default of Infrastructure Leasing & Financial Services. Finance companies also face accentuated liquidity risks due to high proportion of borrowers opting for loan moratorium,” Chugh said.

As per the report, after years of deterioration, asset quality in the Indian banking system had improved over the past 18 months, helped by higher write-offs, slower accretion of bad loans, and resolution of some big cases under the new bankruptcy law.

Nevertheless, Indian banks were still working through a formidable overhang of non-performing assets when the Covid-19 crisis struck. This largely derailed that rehabilitation process, the agency added.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on June 30, 2020
This article is closed for comments.
Please Email the Editor