Banks to see higher retail stress, says India Ratings

NEW DELHI: India Ratings and Research on Monday revised its outlook on the overall banking sector to stable for the fiscal 20212022 from negative even as it sees higher stress emerging in the retail loan segment going ahead.

For public sector banks (PSBs), the outlook has been revised to stable from negative and for private banks, the agency continues to have stable outlook. It estimates that overall stressed assets (gross non-performing assets (GNPA) + restructured) could increase 30% for the banking system, the increase is almost 1.7 times in the retail segment in the second half of the fiscal 2020-21.

According to the agency's Director (financial institutions) Jindal Haria: "The last nine months have provided banks the opportunity to beef up their provisions even more for legacy stressed assets, which were existing before the pandemic. We expect that by the end of FY21, the provisions will go up to almost 75-80% on those NPAs. This will give banks space to absorb COVID stress." With the last year's change in accounting norms, which allows public sector banks (PSBs) to offset their profit and loss balance sheets with share premium account, large banks would be able to manage to raise additional tier 1 capital on their own.

The agency also revised its credit growth estimates to 6.9% in FY21 from earlier 1.8%, and 8.9% in FY22.

It said that about 1.24% of the total bank book is under incremental proforma NPA and about 1.75% of the total book could be restructured by end-FY21.