Mumbai: While Indian lenders are expected to experience bigger slippages than expected in the March quarter, now that the Supreme Court has lifted the suspension of bad debt classification, banks can now continue their recovery plans and improve recoveries.
Banks hoped the undeclared moratorium would be lifted as any further extensions could distort borrowers’ repayment behavior. Based on data for the December quarter, there is a difference of approximately ??1.2 trillion between the reported number and the proforma number of bad debts from 22 lenders. This means that at least ??1.2 trillion unreported sour loans will be classified as NPA in the fourth quarter. That said, banks have already made provisions to cover future covid-19 losses, mitigating the blow somewhat.
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“Banks are expected to experience above normal slippages in the fourth quarter of FY21 and the recovery still looks patchy, especially in the small business, micro, small and medium enterprise (MSME) and microfinance segments.” , analysts at Kotak Institutional Equities said in a report.
However, with non-performing asset (NPA) marking, banks can pursue collections more effectively, resulting in a potential reduction in bad debts, he said.
The report says it continues to believe that large banks are likely to emerge with a lower covid-19 impact given loan portfolios that are skewed towards salaried segments and relatively safer segments within smaller ones. and medium-sized enterprises (SMEs).
Big banks, he said, also typically hold higher provisions for covid-19 and have more solid and granular revenue profiles, providing better stability in the event of new covid-related issues.
According to analysts at Emkay Research, the cancellation of the suspension of the recognition of the NPA is positive for retail banks and SMEs, as it will open up legal recourse and improve the efficiency of collection in late compartments, all the more so with the renewed risk of the second covid-19 wave.
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