COVID-19 Impact: Bad loans in banking sector may rise by Rs 5.5 lakh cr this fiscal, says India Ratings

While bad loans from the corporate sector may rise by Rs 3.4 lakh crore, for non-corporate segments it may increase by Rs 2.1 lakh crore in FY21, India Ratings and Research said in the report

Press Trust of India May 22, 2020 07:21:45 IST
COVID-19 Impact: Bad loans in banking sector may rise by Rs 5.5 lakh cr this fiscal, says India Ratings

Mumbai: With economic activity coming to a standstill due to the COVID-19 crisis, total slippages in the banking system may rise up to Rs 5.5 lakh crore in the current fiscal, says a report.

While slippages from the corporate sector may rise by Rs 3.4 lakh crore, for non-corporate segments it may increase by Rs 2.1 lakh crore in FY21, India Ratings and Research said in the report.

The rating agency said most sectors in the county are likely to experience varying degrees of revenue contraction during FY21 due to demand and supply disruptions.

"COVID-19 may drive total slippages of up to Rs 5.5 lakh crore (5.7 percent of the gross bank credit)," it said.

Banks faced elevated provisions resulting from the corporate stress cycle over FY16-FY20 and they had largely provided for the existing corporate stress and were progressing towards a more moderated credit cost cycle, the report said.

COVID19 Impact Bad loans in banking sector may rise by Rs 55 lakh cr this fiscal says India Ratings

Representational image. Reuters.

However, the COVID-19 related situations are likely to result in another cycle of stress.

The rating agency said as per a stress analysis of 30,000 corporates, the total standard-but-stressed corporate pool may increase from 3.8 percent of the total bank credit as of December 2019 to up to 6.6 per cent in this fiscal.

Out of this, the agency estimates corporates exposures of up to 3.2 percent of total bank credit are at a high risk of slippage.

The report further said the growth slowdown due to the COVID-19 outbreak will aggravate the stress and slippages in the non-corporate segments -- retail, agriculture and micro, small and medium enterprises.

"About 40 percent of the incremental slippages could come from the non-corporate segments," it said.

The rating agency said the pre-COVID credit costs estimates for FY21 show an increase of up to 60 percent, which would bring the profitability of most state-run banks under pressure in FY21.

The credit costs for the system could increase up to Rs 2.7 lakh crore in FY21; around 70 percent of which could be attributed to PSBs.

"If the accelerated provisioning regime is reinstated, then there could be additional credit costs of 0.3-0.6 percent. This could require the government to infuse additional capital into PSBs," it said.

The report expects the capital requirement for PSBs in the range of Rs 30,000-55,000 crore in FY21 under a benign provisioning regime.

Updated Date:

also read

India logs 2,202 new COVID-19 cases in last 24 hours, down 11.45% from day ago; daily positivity rate up at 0.74%
India

India logs 2,202 new COVID-19 cases in last 24 hours, down 11.45% from day ago; daily positivity rate up at 0.74%

India now has 17,317 active cases of COVID-19, a decline of 375 cases in the active caseload in a span of 24 hours. The active cases now comprise of 0.04 per cent of the total infections

COVID-19 update: India reports 2,841 new cases, nine deaths in last 24 hours, active cases dip to 18,604
India

COVID-19 update: India reports 2,841 new cases, nine deaths in last 24 hours, active cases dip to 18,604

The fresh COVID-19 infections reported on Friday were marginally higher than 2,827 cases logged on Thursday. The daily positivity rate was recorded at 0.58 per cent, while the weekly positivity rate was 0.69 per cent

Beijing closes subway stations to restrict movement amid spike in COVID-19 cases
World

Beijing closes subway stations to restrict movement amid spike in COVID-19 cases

On Wednesday, Chinese capital Beijing recorded just 51 local virus infections including asymptomatic ones, while Shanghai reported nearly 5,000, a downward trend as the city loosens some restrictions