S&P sees NPAs jump by up to 11% over 18 months | Mint
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Business News/ Industry / Banking/  S&P sees NPAs jump by up to 11% over 18 months

S&P sees NPAs jump by up to 11% over 18 months

NPAs of banks would have been higher by 10-60 bps in the absence of asset classification relaxations, it said

The SC ruling has concealed soured loans worth over ₹26,000 crore, shows data. HTPremium
The SC ruling has concealed soured loans worth over 26,000 crore, shows data. HT

The toxic assets on banks’ balance sheets are expected to rise to 10-11% of total advances as the regulator phases out the asset classification relaxations offered to lenders to ride out the covid-19 storm, S&P Global Ratings said.

The Indian banking sector’s bad loans will shoot up to as much as 11% of total advances as on 31 March 2022 from 8% on 30 June 2020, the ratings company said on Tuesday.

“India financial institutions will likely have trouble maintaining momentum after the amount of new non-performing loans (NPL) declined in the first half to 30 September 2020," it said.

Much of the credit for the better-than-expected performance of banks in the September quarter, S&P said, goes to the six-month loan moratorium on loan payments and a subsequent Supreme Court order barring banks from classifying defaulter accounts as non-performing. The non-performing assets (NPAs) of banks would have generally been higher by 10-60 basis points (bps) in the absence of the court ruling, said S&P.

The Supreme Court order that allowed banks to maintain certain loan accounts as standard despite defaults by borrowers has at least for now concealed soured loans worth over 26,000 crore, data compiled by Mint showed.

In fact, collection rates, which improved sharply in the second quarter to an average 95%, may also wane, S&P said.

“This trend is aided by the pickup in economic activity since lockdowns ended and, in many cases, by the financial savings of the borrowers. Given that overall economic activity levels remain soft, savings could deplete fast, potentially hurting future collections," it said.

Since the Reserve Bank of India has allowed a one-time restructuring of loans, slippages could decline in the current fiscal, but it may delay recognition to the next year or so, according to the ratings agency. However, the demand for restructuring so far has been lukewarm, but more requests are expected to flow in December.

“While India is not extending moratoriums, as some other banking jurisdictions have, RBI is allowing banks to restructure loans with borrowers hit by covid-19. We do not see restructuring as a panacea to all the banking sector problems," it said.

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Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 25 Nov 2020, 08:38 AM IST
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