The rating agency has predicted less likelihood of a sharp deterioration of asset quality at banks.
Provisioning for banks during the December quarter (Q3FY21) is up nearly 10% sequentially, shows data from 18 banks. Eighteen banks have provided Rs 52,403 crore against loans during the December quarter, compared to Rs 47,827 in September 2020. While 11 private sector lenders made provisions of Rs 18,798 crore during the quarter, seven public sector lenders provided almost double of that at Rs 33,605 crore. Despite rise in provisions, the aggregate net profit of 18 lenders stood at Rs 28,604 crore, up 6% sequentially.
The lenders had made extra provisions during the quarter on account of loans that were not classified as non-performing assets (NPAs) due to Supreme Court’s direction. The apex court had earlier directed lenders not to declare any fresh NPAs from August 31, 2020. The lenders, therefore, declared bad loans on a proforma basis by making adequate provisions for the same. Proforma NPAs of 18 lenders has crossed Rs 7 lakh crore during the December quarter.
In a report on asset quality of lenders, Moody’s said that while gross non-performing loan (NPL) ratios remained high at most banks, net NPL ratios were much lower because of the buildup of significant provisions against legacy bad loans. Moody’s said “The gross NPL ratios of 5 banks declined by an average of about 100 basis point (bps) as of the end of 2020 from a year earlier, even including loans that have become delinquent since the end of August 2020 but are not formally classified as NPLs because of a pending case in the Supreme Court.”
The rating agency has predicted less likelihood of a sharp deterioration of asset quality at banks. “We expect the Indian economy to recover in 2021, and this reduces the likelihood of a sharp deterioration of asset quality at the banks,” Moody’s said. However, they will continue to face capital shortages as their profitability remains weak, it further added.
The financial stability report of Reserve Bank of India (RBI) had earlier stated that banks’ GNPAs may rise sharply to 13.5% by September 2021, and escalate to 14.8%under the severe stress scenario.