Fair winds ahead for private banks as risks of NPLs recede in a slowdown

The performance of HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank, and IDBI Bank was better than expected in the nine months to December 2020.

According to Moody’s Investors Service, despite the economic contraction, the increases in non-performing loans (NPLs) and restructured loans at these banks were less than expected, and the risks of a sharp deterioration of asset quality have receded.

By contrast, YES Bank faces greater asset risks than its peers, although its capitalisation, liquidity and funding have improved.

That said, Moody’s also noted that NPL ratios will increase, as some borrowers aided by support measures will eventually default. Yet, the growth in NPLs will not be substantial, because a nascent economic recovery will lead to improvements in borrowers’ cash flow.