More Covid loans turning bad

3 min read . Updated: 23 Oct 2022, 11:11 PM IST Shayan Ghosh

The end of the repayment moratorium is likely to have triggered the slippages. (Photo: Mint) — The end of the repayment moratorium is likely to have triggered the slippages. **(Photo: Mint)**

For 13 banks that have declared Q2 results, covid recast loans worth ₹10,019 cr have turned NPAs in Apr-Sep

MUMBAI : Even as the covid-era loan moratoriums draw to an end, a large number of loans so restructured have soured, indicating persistent repayment pressures for many borrowers.

The Reserve Bank of India (RBI) opened two windows for loan restructuring under moratoria announced in August 2020 and May 2021 to shield borrowers from the pandemic’s financial impact. Banks restructured over ₹2 trillion of loans under the two schemes.

The total volume of loans restructured under two windows and classified as standard did decline between 31 March and 30 September, data from notes to accounts of banks’ Q2 FY23 financial statements showed. However, while some of the reductions were due to repayments by these borrowers, a majority were due to slippages of recast loans into the non-performing asset (NPA) category.

For 13 banks that have declared their quarterly earnings, covid-19 recast loans worth ₹10,019 crore (mostly retail loans) have turned NPAs in the six months to 30 September. On the other hand, total repayments received from restructured loan customers in the same period stood at ₹5,155 crore, taking the current outstanding—after slippages and repayments—to ₹48,538 crore. To be sure, slippages contribute to a larger reduction in outstanding recast loans than repayments because when an account slips, the entire loan is classified as bad. In contrast, repayments reduce the outstanding only by the amount due for that period.

Analysts are not too perturbed by these slippages, though.

“The slippages are on expected lines. The total quantum of debt recast in the banking system was modest, and most of it is likely towards weak borrowers and probably among the most impacted," said Prakash Agarwal, director and head of financial institutions, India Ratings and Research.

Agarwal said that some of these borrowers are still facing repayment difficulties. Having said that, he believes that since the aggregate restructured loans are low, these slippages are not expected to significantly impact banks’ operating performance.

The end of the repayment moratorium is likely to have triggered these slippages as some borrowers no longer covered under the covid-era relaxations are still unable to earn enough to repay loans. Loans restructured under covid recast frameworks are exiting moratorium in phases, and experts said that a majority of these have already exited.

“Most of the restructured loan book has exited the moratorium, and repayments have started for those loans. At present, not more than 30-40% of the covid-19 restructured book is expected to still be under moratorium across some lenders," said Anil Gupta, senior vice-president and co-group head of financial sector ratings at Icra.

These 13 banks, on average, saw 15% of their outstanding covid-19 recast loans turning bad in the first half of 2022-23. The highest slippage rate was at RBL Bank at 33%, followed by IDFC First Bank at 28%, IndusInd Bank at 27% and HDFC Bank at 25%. At ICICI Bank, Kotak Mahindra Bank and Yes Bank, 8%, 6% and 5% of the respective outstanding covid restructured loans slipped in the six months through September. That said, banks have set aside large sums of money to cover future stress and feel they are adequately protected.

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“I am holding contingency provisions of ₹10,000 crore right now. Against the overall restructured portfolio, we have a specific provision of about 30%," Sandeep Batra, executive director of ICICI Bank, told reporters on a post-earnings call on Saturday.

ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.