Spike in Covid cases could impact bank system’s restructured book: Icra

The quality of the banking system’s assets, especially the restructured portfolio, could face headwinds in the coming days as cases of Covid-19 started to rise again rapidly, the Icra rating agency said.

In September 2021, the Indian banking system restructured loans worth 2.8 trillion rupees, or 2.9% of standard advances, of which around 1000 billion rupees were restructured under Covid 1.0 and 1.2 trillion rupees. Rs were restructured under Covid 2.0, and the rest was restructuring done for micro, small and medium enterprises (MSMEs).

Anil Gupta, vice president of financial sector ratings, Icra Ratings, said that as banks restructure most of these loans with a moratorium of up to 12 months, this book is expected to start rolling out of the moratorium from of T4FY22 and Q1FY23.

“Therefore, a third wave presents a high risk to the performance of borrowers who have been affected by the previous waves and therefore poses a risk to the trend of improving asset quality, profitability and creditworthiness. “

He added that due to the third wave, the demand for loan redesigns could increase again, including for those that have already been restructured. “In such a case, visibility on the performance of the restructured loan portfolio, which was previously expected in FY 23, can now be expected in FY 24, as the moratorium on existing restructured loans could be extended. “said Gupta.

In its semi-annual financial stability report, the Reserve Bank of India (RBI) also warned that the asset quality of Indian banks could decline, but reassured that lenders have enough capital to withstand a shock. He had also expressed a similar sentiment in the Trends and Progress report.

RBI macro-stress tests found that the gross non-performing assets (GNPA) ratio of the banking system could drop from 6.9% in September 2021 to 8.1% by September 2022 in the scenario benchmark and 9.5% in the event of a severe crisis scenario.

According to the ICRA estimate, around 60% of the total Rs1 trillion restructuring under Covid 1.0 was attributable to businesses and the rest to the retail and MSME segments. Thus, the restructuring under Covid 2.0, which was available to retail borrowers and MSMEs, amounted to 3 times the restructuring under Covid 1.0 because during the second wave the RBI did not announce any moratorium on repayments.

Public sector banks were relatively more accommodating to borrower restructuring requests as their restructured accounts represented 3.2% of standard advances compared to 2.2% for private sector banks.

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