Non-performing loans in the Indian banking sector are likely to rebound and skyrocket to 11 percent of gross loans in the next 12 to 18 months, S&P Global Ratings said Tuesday.
He said the forbearance is “masking” troubled assets for Indian banks emerging from Covid-19 and financial institutions will likely have trouble maintaining momentum after the ratio of non-performing loans (NPL) to total loans declined consistently over the past year. what is the year.
“While financial institutions performed better than we expected in the second quarter, much of this is due to the six-month loan moratorium, as well as a Supreme Court ruling prohibiting banks from classifying anyone borrower as a non-performing asset, “S&P Global Ratings said credit analyst Deepali Seth-Chhabria.
In its report titled “Stress Fractures in Indian Financial Institutions”, S&P said that since loan repayment defaults ended on August 31, 2020, NPLs in the banking sector are likely to skyrocket to 10- 11 percent of gross loans in the next 12-18 months, from 8 percent as of June 30, 2020.
According to S&P, the banking system’s credit costs will remain high at 2.2-2.9 percent this year and next.
“The resumption of economic activity, government credit guarantees for small and medium-sized businesses and good liquidity are helping to limit stress. Our NPL estimates are lower than previous ones, but we continue to believe that the financial strength of the sector will not materially recover until fiscal year 2023 (ended March 31, 2023), ”he said.
According to S&P, between 3 and 8 percent of loans could be restructured.
Banks and non-bank finance companies (NBFCs) have also strengthened their balance sheets and capital bases. Banks have also been building reserves and creating excess COVID provisions, which in our opinion should help them soften the impact of COVID-related losses.
“For the NBFCs that we rate, performance has improved. As with banks, NBFC collections have skyrocketed. Tier 1 NBFCs are benefiting from the system’s surplus liquidity, as indicated by a sharp reduction in risk premiums. However, weaker financial companies have faced higher risk premiums. We expect that polarization to persist in 2021, “added S&P.
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