Centre considering extension of loan moratorium till December-end
Global rating agency, Standard and Poor’s expects gross non-performing assets (NPAs) of Indian banks to spike to 14 percent in FY21 from around 8.5 percent in FY20. “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," the agency said in a note last month
The government is still holding discussions on whether the deadline, which would end on August 31, for loan moratorium could be extended, a senior government official told Moneycontrol.
"There has not been any decision yet on it (extension of date). But, we are holding regular discussions with the RBI (Reserve Bank of India) and other stakeholders, whether such an extension is possible. Maybe till the end of this year," the official said.
The RBI extended the loan moratorium scheme on May 22 for another three months till August-end, taking into account the extended lockdown. Initially, the lockdown was announced in March for three months. The idea was to help stressed borrowers, who have suffered income loss, due to the COVID-19 outbreak and subsequent lockdown.
In case of an extension of moratorium, the identification of bad loans and their provisioning would not take place before the end of FY 2020-21.
"In that case, pumping money into PSBs (public sector banks) for recapitalisation can't happen before April (next financial year)," the official said.
Global rating agency, Standard and Poor’s expects gross non-performing assets (NPAs) of Indian banks to spike to 14 percent in FY21 from around 8.5 percent in FY20.
“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," the agency said in a note last month.
Speaking at the SBI Banking Conclave last week, RBI governor Shaktikanta Das said banks need to prepare for bad times as NPAs are likely to spike on account of COVID-19. He stressed on the fact that banks need to augment their capital base to build a buffer.
Total gross NPAs of banks stood around 8.3 percent in March compared to 9.1 percent in the same period last year. NPA level have come down in recent months, but that trend is unlikely to sustain due to the pandemic. In December last year, RBI had predicted NPAs to spike to 9.9 percent by September. But that was prior to the COVID-19 pandemic.
Das has asked banks to undertake COVID stress tests on their portfolios and focus on building buffers and risk-management. These measures, which are already underway, could help Indian banks face the eventuality of a second NPA wave.
“We have recently advised all banks, non-deposit taking NBFCs and all deposit-taking NBFCs to assess the impact of COVID-19 on their balance sheet, asset quality, liquidity, profitability and capital adequacy for FY21,” Das said.
