Lending

NPAs could jump over the next two quarters; Concerns Mount Over Personal and Small Business Loans, Federal Bank MD Says

The slippages expected are due to the retail trade, the agricultural sector and loans to small businesses which may not be able to meet the criteria set in the single restructuring framework.

Small business and personal loans could increase significantly over the next two quarters if economic conditions do not improve. The Federal Bank’s new slippages could rise by more than 30% amid a tough economy, Federal Bank chief executive and CEO Shyam Srinivasan told PTI. Shyam Srinivasan added that there are no big business loans that she believes could slip into the NPA. The slippages expected are due to retail, agricultural and small business lending that may not be able to meet the criteria set in the one-time restructuring framework announced by the Reserve Bank of India.

While business credit growth is weak in the current fiscal year, the same for personal and small business loans is expected to be higher. In the July Financial Stability Report, the RBI showed that the gross NPA ratio of all SCBs could drop from 8.5% in March 2020 to 12.5% ​​by March 2021 in the baseline scenario. He added that if the macroeconomic environment deteriorates, the ratio could climb further to 14.7% under the highly stressed scenario.

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The report had mentioned that PSU banks are likely to suffer the hardest blow from the rise in NPAs, as their GNPA ratio of 11.3% in March 2020 could rise to 15.2% by March 2021 in the baseline scenario. . With growing uncertainty over the banking sector, RBI Governor Shaktikanta Das said the country’s financial system was healthy but lenders should give up extreme risk aversion during the Covid-19 pandemic and beyond. He added that the top priority for banks and financial intermediaries should be to increase capital levels and improve resilience. He added that banks must remain extremely vigilant and focused, as the stability of the financial sector is a prerequisite for building confidence in businesses, investors and consumers.

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