Lenders better prepared to tackle increased NPAs
Another common thread that we are seeing is the enhanced technology enablement of business processes and embracing of digitization by banks and NBFCs which apart from increasing efficiencies is also helping more activities to be carried out remotely or from home and thus to some extent limiting the impact of the pandemic, observes Crisil
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Mumbai: Even as delinquencies and NPAs are expected to rise, clearly as compared to April of last year lenders are better prepared today by use of the LPC framework. "Here L stands for maintaining higher liquidity on the balance sheet despite the negative carry it entails. P stands for having higher provisioning cover and C stands for higher capitalization and lower leverage. Use of the LPC framework is helping banks and NBFCs to fortify their balance sheet and enhance their resilience to the impact of the pandemic," says Krishnan Sitaraman, senior director and deputy chief ratings officer, CRISIL Ratings Ltd. He said it while addressing a webinar, which was held by Enqube Collaborations recently. In addition, another common thread that we are seeing is the enhanced technology enablement of business processes and embracing of digitization by banks and NBFCs which apart from increasing efficiencies is also helping more activities to be carried out remotely or from home and thus to some extent limiting the impact of the pandemic, he said.
According to Krishnan, while the economy and financial sector are currently facing headwinds with the spread, intensity and duration of the pandemic and the accompanying lockdown measures being key monitorables, there is a silver lining to the clouds with a definite scope for a brighter future as there are fundamental strengths that India has because of its demographics on account of which both demand and supply dynamics for the financial sector should revive over medium term – the question is not if but when. And in this process if there is a favourable landscape supported by the successful implementation of reforms announced in the last few years; that would be a definite tailwind
When we think of the Indian financial sector, the three key words from today's theme of the webinar – Issues, Opportunities and Challenges are all very relevant. Given the circumstances that we are in today, the word Challenges is what comes to our mind quickly. The Indian economy de-grew for the first time in four decades last fiscal with an estimated eight per cent de-growth. Just as in Q4 of last fiscal, the recovery was beginning to take root; the second wave has muted growth prospects. In the second wave, the medical or health impact has been much more than the first wave last year with a higher number of infections, hospitalizations and unfortunately deaths.
"And with the last few days seeing reducing infection numbers and with vaccinations making slow but steady progress, hopefully we will see a recovery from next quarter," he went on.
Coming to the recapitalization of banks, the last four years itself have seen a capital infusion of around Rs 2.8 lakh crore into public sector banks. If the Government had not done this, there could have been a risk to the stability of the financial sector.
