With the second wave of coronavirus spreading rampantly across the country, banks are again staring at a year of defaults, NPAs and bad books. Moreover, the RBI is yet to announce a moratorium for this year.
Bankers fear lockdown-like curbs, including curfews, travel restrictions and mall shutdowns, are likely to hurt borrowers, triggering a second wave of defaults.
Rating agency Fitch, last week said, more than 80 per cent of new infections are in six prominent states that account for roughly 45% of banking sector loans. The operating environment for banks, Fitch said, will most likely remain challenging and the second wave could dent the sluggish recovery in consumer and corporate confidence, and further suppress banks’ prospects for new business.
“There are also asset quality concerns as banks’ financial results are yet to fully factor in the first wave’s impact and the stringent 2020 lockdown due to the forbearances in place," Fitch said on April 9.
The apex court in March directed banks to waive compound interest on loans for all borrowers between March and August. According to a report by Mint, lockdowns in Maharashtra are likely to hit banks as nearly a quarter of all bank loans have been made to individuals and businesses in the state. As of March 31 2020, Maharashtra accounted for 24 per cent of loans from commercial banks.
Although it is too early to predict the bad loan situation, another round of curbs will hurt small businesses more. As India grapples with a second and a fiercer onslaught of the coronavirus, the nascent recovery in the economy is also at stake. Much like the previous bout of the pandemic, retail loans are expected to experience more stress than corporate loans, said the banker.
India’s bad loan problems are likely to worsen, with the existing ₹7.38 trillion stockpile set to expand in the coming months. Rating agency Icra estimates 9.6-9.7% of bank loans would have turned bad in FY21.
The second wave also puts bankers at risk. Around 600 bank staff died during the pandemic, data from the Indian Banks’ Association showed.