Loan recast of stressed assets comes with a higher cost: India Ratings

India Ratings and Research (Ind-Ra) estimates that the credit costs due to the recast of stressed loans by banks will range between 2.6 per cent and 3.4 per cent in FY21. It said that certain stressed assets, though not at the risk of an immediate slippage, could also be restructured.

 

As per Ind-Ra’s estimates, up to 7.7 per cent (Rs 8.4 trillion) of total bank credit in FY20, including the corporate and “non-corporate segments” (read retail), could get recast — or, if they do not qualify for restructuring, the asset quality may head south.

The loan amounts in the recast could be higher, if the same in retail exceeds 1.9 per cent of the total bank credit. Ind-Ra also revised its outlook on the banking sector to “negative” for 2HFY21, from “stable”.