omicron: Risk of new wave of COVID for the quality of bank assets, in particular for restructured loan portfolios: ICRA


NEW DELHI: The third wave of Covid-19 in India poses a risk to the quality of banks’ assets, especially for restructured loan portfolios, the rating agency said.

The agency stressed that part of the restructured books of banks was under moratorium as of September 30, 2021 and could therefore face risks of slippage as the expected start of repayments comes in the middle of the third wave of COVID-19.

With the Omicron strain of the virus spreading rapidly in India, daily cases of COVID have increased exponentially in the country, with several state governments imposing further activity restrictions.

“… According to ICRA estimates, 60% of the total restructuring of 1.1 trillion rupees under Covid 1.0 was attributable to companies and the remainder (or 0.4 trillion rupees) to retail segments. and MSMEs. Therefore, the restructuring under Covid 2.0, which was available to retail borrowers and MSMEs, amounted to 3 times the restructuring under Covid 1.0, ”the agency said.

The larger restructuring during the second wave of the disease in India in March 2021 was mainly due to the lack of a moratorium on loan repayments, ICRA said.

As of September 30, Indian banks’ standard restructured loan portfolio stood at Rs 2.8 lakh crore, which is 2.9% of standard advances.

The agency observed that state-owned banks show a relatively greater degree of accommodation when it comes to restructuring borrower demands, with the restructured books of these lenders accounting for 3.2 percent of standard advances versus 2 percent. , 2% for private banks.

This restructuring resulted in the upgrading of some accounts that would have experienced slippages earlier, ICRA said, adding that large-scale collections from Dewan Housing Finance Limited contributed to the highest collections and upgrades for banks over the past three years.

“As a result, despite the high gross slippage rate of 3.2% in the second quarter of fiscal 2022 (3.5% in the first half of fiscal 2022 and 2.7% in fiscal 2021) , gross and net non-performing advances (APM) remained on a downward trend. Said the rating agency.

According to ICRA, the slippage and repayment rate for the period under review was much higher for private sector banks than for their public sector counterparts, suggesting that the moratorium period offered by public banks was likely longer. high.

“… A third wave poses a high risk to the performance of borrowers who have been affected by previous waves and therefore poses a risk to the trend of improving asset quality, profitability and creditworthiness.” , Anil Gupta, Vice President – Financial Industry Ratings, told ICRA Ratings.

“The third wave could revive demand for credit restructuring, including already restructured credits. In such a case, the visibility on the performance of the restructured loan portfolio, which was previously expected for fiscal year 2023, can now be expected for fiscal year 2024, as the moratorium on existing restructured loans could be extended.


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