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Stressed assets could touch 20% by end of fiscal year: Macquarie Capital

Mumbai: In what could raise alarm bells over the asset quality of the Indian Banking system, Macquarie Capital has estimated that stressed assets could more than double and touch nearly 20% by the end of FY21. Bad loan ratio at the end of March 2020 stood at 8.5%.

“As per our estimates, we believe overall stressed assets for banks is expected to touch 20% by FY21E which is perhaps the highest observed in the history of the banking system in India and also one of the highest in the world,” said Suresh Ganapathy, Associate Director, Macquarie Capital.

This is so far the worst assessment of the stress induced by the pandemic on bank’s books. The Reserve Bank of India as part of the stress tests it conducted on lender’s books predicted that bad loan ratio could rise to 14.7% under a severely stressed scenario.

Under Standard Chartered’s baseline scenario, which assumes about a 15% drop in earnings, stressed debt as a proportion of total debt could increase to 17%-19% by March 2021 from 14% this year.

While global ratings agency S&P has indicated that bad loans across the Indian banking system could rise to nearly 13-14% of total loans in the current financial year, hitting its 1999 bad loan peak.

The Indian economy witnessed a rare contraction in its growth prospects, with the official GDP figures for the first quarter of FY21, showing the economy had contracted by 23.9%. The RBI governor Shaktikanta Das recently warned that India’s economic recovery will be gradual quashing hopes a V-shaped recovery. India’s lead economic indicators, which had shown an uptick in June and July, appear to be levelling off, Das had said.

“The end-August press release of the National Statistics Office (NSO) was a telling reflection of the ravages of Covid-19… the recovery is not yet fully entrenched in some sectors,” he had said. “By all indications, the recovery is likely to be gradual as efforts towards reopening of the economy are confronted with rising infections.”

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