No big NPA shock for banks this fiscal: Financial Services Secretary

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Financial Services Secretary Debashish Panda has expressed confidence that there will be no ‘major shock’ till the end of this fiscal year as far as non-performing assets of public sector banks are concerned.

“With time, as the economy picks up and data becomes available, the earlier set of projections is being reviewed. It has since been indicating a much reduced impact than feared,” Panda said in an interview to BusinessLine.

FSR projections

This remark assumes significance as the RBI, in its July Financial Stability Report (FSR), estimated that the Gross NPA ratio of all scheduled commercial banks may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario, and may escalate to 14.7 per cent under a very severely stressed situation. However, in a report last month, CARE Ratings said the GNPA improved to 7.7 per cent in September 2020 from 8.2 per cent in the preceding quarter.

Noting that loan repayments have picked up post lockdown, Panda said that for certain banks, about half the borrowers initially availed themselves of the moratorium during the lockdown but have started repaying after Unlock.

Provisions made

He added that banks, particularly PSBs, have made sufficient provision for the anticipated losses. If such an account does not turn NPA, obviously the provision will be written back. However, as a measure of abundant caution, banks have made sufficient provisions during successive quarters; else, their profits would have been higher.

“I do not foresee major shock as far as the NPA is concerned. However, it will be very difficult to forecast the exact quantum of NPAs at this point of time,” he said.


Bank recapitalisation

Asked about PSBs’ recapitalisation plans, he said they have already raised around ₹41,000 crore and more than ₹20,000 crore is expected before March 31, 2021.

“We recognise the need to adequately capitalise the banks. Action for further capitalisation will be taken at the appropriate time,” he said. In this year first Supplementary Demands for Grant, as approved by Parliament during the monsoon session, the Centre provided ₹20,000 crore for recapitalisation of PSBs.

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