Overdue loans could spike fresh slippages in H1 of FY22, says Icra

The high level of overdues in loan books could spike fresh non-performing assets (NPAs) in the first half of the current fiscal ending September 2021 (H1FY22) amid the surge in Covid cases and its economic impact. However, restructuring and enhanced funding of Rs 1.5 trillion under government guaranteed credit scheme could provide some relief for lenders, according to rating agency Icra.

The asset quality of banks has surprised positively with a decline in reported gross NPAs to 7.6 per cent this March from 8.6 per cent in March 2020. Net NPAs also declined to 2.5 per cent this March from 3 per cent a year ago. The fresh NPA generation has also declined to Rs 2.6 trillion (2.7 per cent of advances) in FY21 from Rs. 3.7 trillion (4.2 per cent) in FY20, Icra said.

The rating agency pointed out that the headline asset quality numbers of banks do not reflect the underlying stress on the income and cash-flows of the borrowers impacted because of Covid-19.

Various regulatory and policy steps like moratorium on loan repayment, standstill on asset classification and liquidity extended under Emergency Credit Line Guarantee Scheme (ECLGS) had a positive impact on asset quality of lenders. However, as the overdue loan book continues to remain at elevated levels, the second wave could push some of these borrowers into NPAs in H1 FY2022.

While restructuring and emergency credit is likely to increase the indebtedness of the borrowers, it could provide temporary liquidity relief to tide over the crisis induced by the second wave.

In absence of standstill on asset classification, the fresh NPAs generation is expected to be higher. However, the recoveries and upgrades could improve in FY2022. This coupled with a credit growth of 7.3-8.3 per cent in FY22 (5.5 per cent in FY21), the GNPAs could decline to 6.9-7.1 per cent level and NNPAs 1.9-2.0 per cent level by March 31, 2022.