Coronavirus impact: Rating agencies see more pain for banks and NBFCs

'Spike in NPAs will be reflected over the next few quarters'

Rating agencies Moody’s Investors Service and ICRA on Thursday said they expect deterioration in banks’ asset quality because of the disruption in economic activity from the coronavirus outbreak. While Moody’s changed the outlook for the banking system to negative from stable, ICRA said it expects banks and non-banking financial companies (NBFCs) to see a spike in non-performing assets (NPAs).
 

Moody’s said banks’ asset quality will deteriorate across the corporate, small and medium enterprises and retail segments, leading to pressure on profitability and capital.
 

“We have changed the outlook for the Indian banking system to negative from stable. Disruptions to economic activity from the coronavirus outbreak will exacerbate a slowdown in India’s economic growth,” Moody’s said.
 

“Disruptions from the coronavirus outbreak will exacerbate India’s economic slowdown. A deterioration of global economic conditions and a 21-day lockdown imposed by the Indian government in an effort to slow the spread of coronavirus will weigh on domestic demand and private investment,” Moody’s added.
 

Moody’s rates 16 commercial banks in India, which together account for around 75 per cent of deposits in the system.
 

According to an Icra report, the spike in reported NPAs would be reflected over the next few quarters. It expects GDP growth to slow to 2 per cent during financial year 2020-21 from estimates of 4.4 per cent in 2019-20.

“The asset quality pressure for banks and NBFCs is expected to increase in FY21, notwithstanding the three-month moratorium provided by the Reserve bank of India (RBI) to borrowers on their loan repayments,” the rating group head (financial sector ratings) Karthik Srinivasan told reporters through a webinar.

He said the actual increase in the quantum of NPAs for banks and NBFCs will be known after some more days.
 

Last week, the Reserve Bank of India (RBI) gave a relief package for retail borrowers and businesses by announcing a three-month moratorium on payment of all term loans falling due between March 1, 2020 and May 31, 2020.
 

Private sector banks are likely to see gross slippage rate of 4-5 per cent and a fall in provision coverage ratio to 60-62 per cent in the current fiscal year.
 

With the recent cut in policy rates by RBI and small savings rates by the government, it is expected that the banks will cut their one-year deposit rates by around 50-70 bps during FY21, ICRA said.