Covid stress: Banks see 4-5% slippages in restructured portfolios

Banks have begun to see slippages in accounts that were restructured under the resolution frameworks issued by the Reserve Bank of India (RBI) for alleviation of Covid-related stress. Bankers say anywhere between 4% and 5% of such accounts have slipped into the non-performing asset (NPA) bucket.

Concerns persist around not just small-ticket retail and micro, small and medium enterprise (MSME) accounts, but also a chunky Rs 6,577-crore exposure to Future Retail. The retailer’s loans were recast under the terms of the Kamath committee framework issued in 2020. The company missed its December 31, 2021, deadline to repay its lenders Rs 3,494.56 crore as it failed to complete the sale of some assets amid ongoing litigations with Amazon.com.

Banks are beefing up provisions against their restructured pools. Also, the Indian Banks’ Association’s (IBA’s) plea to the central bank to extend deadlines for meeting some operational metrics under the Kamath committee framework indicates nervousness among lenders about the recoverability of some restructured loans.

HDFC Bank has told investors that the impact of restructuring on its gross NPA ratio could be between 10 and 20 basis points (bps) during any given quarter. The large private lender shrank its restructured book by Rs 900 crore between September and December 2021, with half of this amount moving into the NPA book.

ICICI Bank also admitted to seeing slippages in recast accounts. Rakesh Jha, chief financial officer of ICICI Bank, said, “We have seen some slippages from the restructured portfolio. Of the reduction on the restructured loans about one-third has been because of slippages, two-thirds has been recovery. That’s the kind of trend that we have seen.”

While due dates for accounts restructured under resolution framework 2.0 have just started coming up in January 2022, weaker assets recast under the first framework have already started to turn bad. After the March quarter ends, slippages from restructured accounts are likely to rise.

Bank of India (BoI) said in a post-results call that it saw a slippage of about 4-5% in the restructured category. The bank has been counselling borrowers to ensure that as economic conditions improve, recoveries pick up as well. “You can see the fresh slippages in those segments have drastically come down from a level of Rs 1,307 crore to Rs 768 crore, excluding the Future Retail account. So we don’t have any pains there,” BoI management told reporters.

Earlier, the RBI has warned of incipient stress in lenders’ restructured portfolios in its report on trend and progress of banking in India for FY21.

Apart from Covid-related relief schemes, banks also hold restructured MSME accounts under a pre-pandemic framework. These loans were those that were standard as on January 1, 2019, and where restructuring was required to be implemented by March 31, 2020. Since then, the scheme has been extended three times, with the last date of invocation of restructuring being September 30, 2021.

from Banking & Finance – The Financial Express https://ift.tt/SnU08El