MUMBAI: Rising collection efficiencies helped by a rebound in economic activities and benign initial requests for loan restructuring have made banks increasingly confident that the provisions they carry on their books should be good enough to deal with Covid-related stress.
Both private and public sector banks are confident that stress in their books will not go out of control by the end of the fiscal as they have all increased their provision coverage ratios (PCR) to deal with any increased stress. However, analysts say that the real test will come in the third and fourth quarters as the Supreme Court stay on classification of NPAs will be lifted and more clarity will emerge on the restructuring requests to banks.
ICICI Bank was the latest among lenders to express confidence on its level of provisioning and asset quality, following upbeat outlooks by peers RBL Bank, Axis Bank and IndusInd Bank. Even large public sector lenders such as Canara Bank and Bank of Baroda (BoB) expressed confidence that Covid-related stress will not go out of control.
“We have enhanced confidence that our underwriting and provisions made in March and June will be enough to cushion against losses due to Covid. We have not yet utilised the Rs 8,772 crore made for Covid,” said Sandeep Batra, president, ICICI Bank. Like its peers, the bank has also increased provision coverage on NPAs to 81.5% in September 2020.
Earlier, another large private sector lender, Axis Bank, also expressed confidence that the provision coverage they have built will be enough to cover for losses.
“We have now built a provisioning buffer of Rs 10,839 crore over and above our PCR of 77% which improved 243 bps quarter-on-quarter. On an aggregated basis, our PCR stands at 124% of GNPA at Sep 20, 2020 as against 76% in September 2019,” CEO Amitabh Chaudhry said expressing confidence that the economy will gradually recover to pre-Covid levels.
Even smaller private sector banks like RBL and IndusInd said that higher provisions and recovery in collections are signs that make them increasingly confident of the future.
Vishwavir Ahuja, CEO at RBL bank said they have done enough in terms of Covid provisions and expressed confidence that the bank will be back to attaining business normalcy by the end of the fourth quarter this fiscal.
IndusInd Bank CEO Sumant Kathpalia said he expects the bank's restructuring book to be in “single digits” even as it stepped up provisions to deal with any Covid-related uncertainties. The bank increased total provisions to Rs 4,606 crore up from Rs 2,381 crore a year ago including Covid provisions of Rs 2,155 crore of which Rs 952 crore during the quarter. Higher provisions improved the provision coverage ratio to 77% in September 2020 from 67% in June and 50% in September 2019.
Analysts said private sector banks get their confidence from the capital they raised last quarter. All four of the banks mentioned above raised funds from investors to buffer up their capital ratios. “All these banks have capital adequacies in their high teens so in that sense they have a strong buffer. But it is still an unfolding situation because we do not know how deadly or harmless the virus could be in the future. There is no fear of a lockdown now but the future is still uncertain with the onset of winter and off course as the Supreme Court stay on NPA classification is lifted,” said Lalitabh Srivastawa, analyst at Sharekhan a part of the BNP Paribas Group.
Two large public sector banks which also declared results last week also said the situation is better than expected. Both Canara and BoB have raised Tier I debt in the quarter as they too fortified their balance sheets to deal with the Covid linked stress.
Higher collection efficiencies and low requests for restructuring gives the bank “room for cautious optimism” Chadha said. “We are also somewhat surprised with the behaviour of our book. Collection efficiency for the bank improved to 91% close to the 94% reported last year with loans which were under moratorium until August reporting a 87% collection efficiency,” Chadha said.
Canara Bank CEO LV Prabhakar said he does not expect any large shocks as total slippages are likely to be contained at 10,000 crore this fiscal year.
Both private and public sector banks are confident that stress in their books will not go out of control by the end of the fiscal as they have all increased their provision coverage ratios (PCR) to deal with any increased stress. However, analysts say that the real test will come in the third and fourth quarters as the Supreme Court stay on classification of NPAs will be lifted and more clarity will emerge on the restructuring requests to banks.
ICICI Bank was the latest among lenders to express confidence on its level of provisioning and asset quality, following upbeat outlooks by peers RBL Bank, Axis Bank and IndusInd Bank. Even large public sector lenders such as Canara Bank and Bank of Baroda (BoB) expressed confidence that Covid-related stress will not go out of control.
“We have enhanced confidence that our underwriting and provisions made in March and June will be enough to cushion against losses due to Covid. We have not yet utilised the Rs 8,772 crore made for Covid,” said Sandeep Batra, president, ICICI Bank. Like its peers, the bank has also increased provision coverage on NPAs to 81.5% in September 2020.
Earlier, another large private sector lender, Axis Bank, also expressed confidence that the provision coverage they have built will be enough to cover for losses.
“We have now built a provisioning buffer of Rs 10,839 crore over and above our PCR of 77% which improved 243 bps quarter-on-quarter. On an aggregated basis, our PCR stands at 124% of GNPA at Sep 20, 2020 as against 76% in September 2019,” CEO Amitabh Chaudhry said expressing confidence that the economy will gradually recover to pre-Covid levels.
Even smaller private sector banks like RBL and IndusInd said that higher provisions and recovery in collections are signs that make them increasingly confident of the future.
Vishwavir Ahuja, CEO at RBL bank said they have done enough in terms of Covid provisions and expressed confidence that the bank will be back to attaining business normalcy by the end of the fourth quarter this fiscal.
IndusInd Bank CEO Sumant Kathpalia said he expects the bank's restructuring book to be in “single digits” even as it stepped up provisions to deal with any Covid-related uncertainties. The bank increased total provisions to Rs 4,606 crore up from Rs 2,381 crore a year ago including Covid provisions of Rs 2,155 crore of which Rs 952 crore during the quarter. Higher provisions improved the provision coverage ratio to 77% in September 2020 from 67% in June and 50% in September 2019.
Analysts said private sector banks get their confidence from the capital they raised last quarter. All four of the banks mentioned above raised funds from investors to buffer up their capital ratios. “All these banks have capital adequacies in their high teens so in that sense they have a strong buffer. But it is still an unfolding situation because we do not know how deadly or harmless the virus could be in the future. There is no fear of a lockdown now but the future is still uncertain with the onset of winter and off course as the Supreme Court stay on NPA classification is lifted,” said Lalitabh Srivastawa, analyst at Sharekhan a part of the BNP Paribas Group.
Two large public sector banks which also declared results last week also said the situation is better than expected. Both Canara and BoB have raised Tier I debt in the quarter as they too fortified their balance sheets to deal with the Covid linked stress.
Higher collection efficiencies and low requests for restructuring gives the bank “room for cautious optimism” Chadha said. “We are also somewhat surprised with the behaviour of our book. Collection efficiency for the bank improved to 91% close to the 94% reported last year with loans which were under moratorium until August reporting a 87% collection efficiency,” Chadha said.
Canara Bank CEO LV Prabhakar said he does not expect any large shocks as total slippages are likely to be contained at 10,000 crore this fiscal year.
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