Private banks in India have turned extra cautious amid widespread business disruptions from the coronavirus pandemic, with the top lenders setting aside more than ₹17,000 crore in provisions fearing a surge in bad loans after the six-month loan moratorium ends in August.
HDFC Bank Ltd, Axis Bank Ltd, Bandhan Bank Ltd, Federal Bank Ltd and ICICI Bank Ltd have made aggregate provisions of ₹17,146 crore in the June quarter. The figure is 9.17% lower than the ₹18,876 crore set aside in the March quarter but marked a 67% rise from the year-earlier period. This is despite a declining trend in loans under moratorium seen in the past two months.
The Reserve Bank of India (RBI) allowed lenders to offer a six-month moratorium to borrowers in a bid to provide relief to businesses and people. The RBI’s Financial Stability Report released on Friday said the bad loan ratio of banks is expected to climb to the highest level in more than two decades as a protracted lockdown has severely hit businesses and left millions of people jobless, impairing their ability to repay.
Non-performing assets at banks may rise 4 percentage points to 12.5% of advances by March 2021, the highest since FY2000, under the baseline stress scenario, RBI said in its report.To be sure, lenders continue to be apprehensive even as the percentage of borrowers under moratorium has started to decline significantly in the second phase of the deferment with an increase in repayments.
For instance, while 25-28% of Axis Bank’s loan book was under moratorium as of 25 April, it dropped to 9.7% as of 30 June. Similarly, at HDFC Bank, 9% of its loan book was under moratorium as of 30 June.
Lenders say they are unclear on the amount of stress that could come to their books post 31 August, after the end of the moratorium.
“We still do not know whether we have yet or when we will flatten the curve in India," Sashidhar Jagdishan, group head, HDFC Bank, told analysts on 18 July.
India’s largest private sector bank has built up a war chest of provisions and has also taken steps to further tighten credit during this period.
Axis Bank has turned even more conservative and changed some of its policies to shield itself. It now holds excess provisions of ₹6,898 crore, and has a provision coverage ratio of 75% as on 30 June, up from 69% as on 31 March. The bank has made incremental provisions of ₹733 crore in the June quarter towards the pandemic.
Amitabh Chaudhry, chief executive of Axis Bank, said on 21 July that it took a conservative approach on changes in accounting policies; increase in provisions on standard investments, red-flagged accounts and covid provisions; and a conservative stance on interest recognition for net interest income.
“With these changes, we believe we are now at the conservative end of accounting choices," said Chaudhry.
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