Operating profitability steady in banking sector

Mumbai: The second wave of the Covid-19 pandemic posed challenges for banks like increase in overdue levels and higher infection rates among employees, impacting collections and resulting in higher slippages and some increase in the restructured book. However, despite these challenges, the steady operating profitability and reducing provisioning on legacy stressed accounts continued to provide relief to the bottom-line and the capital position of banks, ratings agency ICRA has said in a report.

The gross non-performing advances (GNPAs) and the net NPAs remained stable at 7.7 per cent and 2.5 per cent respectively for banks as on June 30, 2021, compared to 7.6 per cent and 2.5 per cent as on March 31, 2021, and 8.6 per cent and 3.0 per cent as on March 31, 2020, i.e. at the beginning of the pandemic.

Of the total restructured loan book of Rs 2 lakh crore for the banks as on June 30, 2021, the restructuring under Covid 1.0 is estimated at 51 per cent of the total restructuring of Rs 1.0 trillion, while restructuring under Covid 2.0 is estimated at 31 per cent of the total restructuring or Rs 0.6 trillion.

Moreover, as per ICRA's estimates, of the total restructuring of Rs 1 lakh crore under Covid 1.0, 60 per cent was accounted for by corporates, 30 per cent by retail and the balance by the MSMEs as on June 30, 2021. The public sector banks (PSBs) were relatively more accommodative in restructuring requests of the borrowers as their restructured books stood at 2.4 per cent of the advances vis-a-vis 1.3 per cent of the private sector banks (PVBs).

Notwithstanding the positive headline asset quality numbers, the fresh NPA generation rate (or slippages) remained elevated during the second wave in absence of regulatory relief such as moratorium. The gross fresh slippages during Q1 FY2022 stood at Rs 1.0 lakh crore (annualised slippage rate of 4.1 per cent) compared to Rs 2.5 lakh crore or 2.7 per centp during FY2021.

ICRA expects this to remain elevated at Rs 0.7-0.8 lakh crore (2.8-3.2 per cent) during Q2 FY2022 but moderate to Rs 1.1-1.2 lakh crore (2.0-2.4 per cent) during H2 FY2022 as the impact of second wave wanes.

Commenting on the developments, Anil Gupta, Vice President - Financial Sector Ratings, ICRA Ratings says: "Considering that 30-40 per cent of the loan book was under moratorium during Q1 FY2020 across most banks, the loan restructuring at 2.0 per cent of advances after the second wave is a positive surprise and much lower than our earlier estimates. Despite the positive headline numbers, we continue to be watchful of the asset quality, given the elevated levels of the overdue loan book and for the performance of the restructured loan book."