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Coronavirus stress evident in financial sector as stressed loans jump

Indian financial system’s stress loans jumped at least by Rs 4.60 lakh crores during the Covid period, taking the gross stressed loans to 12.6% of total loans in June 2021, from 8.2% of loans as of March 2020, estimates Nomura Securities.

On an aggregate basis, gross NPAs and restructured assets across banks and NBFCs increased to Rs 13.2 lakh crore in June 2021 from Rs 8.6 lakh crore in March 2020 due to an addition of Rs 3.7 lakh crore in loans due past 90 days and also Rs 2.4 lakh crore of restructured assets after adjusting for recoveries and write offs during the period.

“It would not be too out of place, in our view, to suggest that the entire increase in stressed asset pool is on the Mar’20 asset base and stress contribution from incremental lending in FY21 would be rather limited,” Nomura analysts Nilanjan Karfa, Amit Nanavati and Tanuj Kyal said in a note.

Segregating the stress between banks and NBFCs, total stress has increased to 13.3% in June 2021 versus 8.9% in March 2020 for banks, while it has increased to 6.7% in June 2021 versus 3.1% in March 2020 for NBFCs, including loans given through the government sponsored Emergency Credit Line Guarantee Scheme (ECLGS).

Nomura estimates that enders have created an additional exposure of about Rs 2.5 lakh crore towards the ECLGS scheme of which Rs 1.7 lakh crore could so far be accounted for. It estomayes that banking sector exposure to ECLGS could be 5 times of the total money disbursed as caps for disbursals from the scheme have been increased three times already.

Among banks, Life Insurance Corp of India (LIC) controlled IDBI Bank is estimated to have the largest amount of ourstanding stock of stressed loans as of June 2021 at 36.7% followed by 27.2% of Central Bank of India. Private sector HDFC Bank has the least amount of stressed pool at 6% just below Axis Bank which has 6.8% of loans under stress including restructured loans. Yes Bank and Bandhan Bank are the two private sector banks with stressed loan stock of 20% or more.

Just like restructuring rounds previously, state owned banks have restructured a higher percentage of loans across all the schemes COVID one-time restructuring scheme 1 (OTR #1), OTR #2, corporate debt restructuring scheme (CDR) and RBI MSME restructuring scheme.

“Between Mar’20 and Jun’21, state owned banks’ share in incremental restructuring across all schemes is 78%, and the balance is with private sector banks. Likewise, the share of state owned banks within OTR #1 where the plan is fully implemented is 72%, under implementation OTR #1 and OTR #2 it is 81%, and in the MSME scheme it is 83%,” Nomura said.

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