Bank loan passbooks, asset quality at risk due to Omicron, says ICRA


As the Omicron variant of Covid-19 cases spreads across the country, a potential third wave of virus infection poses a risk to banks’ asset quality, particularly the restructured loan portfolio, the rating agency says. ICRA.

“Banks restructured most loans (during the second wave of Covid-19) with a moratorium of up to 12 months. This book is expected to start exiting the moratorium from the fourth quarter of fiscal 2022 and the first quarter of fiscal 2023. Therefore, a third wave poses a high risk to the performance of borrowers who have been affected by the waves. and therefore poses a risk to the trend of improving asset quality, profitability and solvency,” Anil Gupta, Vice President – ​​Financial Sector Ratings at CIFAR Ratings, said.

According to ICRA, with progressive restructuring under Covid 2.0, the overall standard restructured loan portfolio (mainly borrowers impacted by Covid 1.0 and 2.0) for banks increased to 2.9% of standard advances as of September 30, 2021 (2 .0% as of June 30, 2021). Restructuring under Covid 1.0 is estimated at 34% (or ₹1.0 lakh crore) of the total standard restructured loan portfolio of ₹2.85 lakh crore for banks as of September 30, 2021, while restructuring under Covid 2.0 is estimated at 42% or ₹1.2 million crore. The balance included restructuring of micro, small and medium-sized enterprises (MSMEs) and others.

ICRA estimates that 60% of the total restructuring of ₹1.0 lakh crore under Covid 1.0 was attributable to corporates and the balance (or ₹0.4 lakh crore) to the retail and MSME segments. So the restructuring under Covid 2.0, which was available to retail borrowers and MSMEs, was 3 times the restructuring under Covid 1.0. “The absence of a moratorium on loan repayments as announced by the Reserve Bank of India (RBI) during Covid 1.0 has resulted in higher restructuring under Covid 2.0. Public Sector Banks (PSBs) have been relatively more accommodating to borrowers’ requests for restructuring since their restructured books amounted to 3.2% of standard advances compared to 2.2% for private sector banks (PVBs).The restructuring also resulted in the revaluation of accounts, which This, coupled with the strong recovery of Dewan Housing Finance Limited (DHFL) in the second quarter of FY2022, has led to the highest recoveries and upgrades for banks in the last three years As a result, despite the high gross slippage rate of 3.2% in the second quarter of fiscal 2022 (3.5% in the first half of fiscal 2022 and 2.7% in fiscal 2021) , gross and net advances not (NPA) remained on a downward trend,” says ICRA.

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