Mumbai: The threat of the third wave of Covid-19 raises a high risk of the quality of bank assets, especially the restructured loan book, according to a report by the ICRA domestic rating agency.
In addition to bad loans, lenders tend to see challenges on profitability and lines of solvency because of disruption caused by the omicron coronavirus variant, the body said.
It also saw the point of 15-20-base uptick in the recruitment request from the borrower.
Vice President Agency (financial sector ranking) Anil Gupta said, “With the increasing spread of the new Covid-19 variant, i.e.
Omicron, there is a possibility of the third wave.” He added that the third wave pose a high risk of the performance of the borrower which was influenced by the previous wave and therefore pose a risk of increasing asset, profitability, and solvency trends.
Gupta also said the bank restructured most of the loans with a moratorium of up to 12 months.
“Therefore, restructured books tend to start out of the moratorium from Q4 FY2022 and Q1 FY2023.” During two waves of pandemic, the Reserve Bank of India (RBI) announced a resolution framework of 1.0 and 2.0 to provide assistance to borrowers and banks.
With additional restructuring under the Covid 2.0 scheme, the overall standardized standard loan book for the bank increased to 2.9 percent of the standard progress on September 30, 2021, (two percent on June 30, 2021), the report said.
Most of these restructuring includes borrowers affected by Covid 1.0 and 2.0.
The agency said the restructuring in the Covid 1.0 scheme was estimated at 34 percent (or RS 1 Lakh Crore) of the total standard loan book that was restructured by Rs 2.85 lakh Crore for the Bank on September 30, 2021.
And, under Covid 2.0, it is estimated to reach 42 percent or 1,2 lakh crore Rs.
The balance consists of micro, small and medium enterprises (MSMEs) and other restructuring, he said.
This report added that the Bank has implemented around 83 percent of the total demand received under Covid 2.0, which leads to the overall restructuring of Rs 1.2 lakh Crore loans until September 30, 2021.
“Because restructuring requests can be implemented until December 31.
2021, ( Under the Covid 2.0 scheme), additional restructuring can increase by 15-20 bps from the current level, “said the agency.
Gupta added that the third wave can revive demand for loan restructuring, including those that have been restructured.
“In such cases, visibility on the performance of a restructured loan book, which was previously expected in FY2023, can now be expected in FY2024 because the moratorium on existing restructuring loans can be extended,” he said.
According to ICRA estimates, 60 percent of the total restructuring RS 1 Lakh Crore under Covid 1.0 is calculated by corporations and balances (or 0.4 lakh crore rs) by the retail and MSME segments.
Therefore, restructuring under Covid 2.0, which is available for retail borrowers and MSMEs, reaches 3x of restructuring under Covid 1.0, he said.
The report said the restructuring also led to an increase in accounts, which would slip before.
This, coupled with a major recovery from the Board of Housing Finance Ltd (DHFL) in Q2 FY2022, leads to recovery and the highest increase for the Bank for the past three years.
As a result, despite the gross level of gross levels of 3.2 percent in Q2 FY2022 (3.5 percent in the H1 FY2022 and 2.7 percent on FY2021), the non-gross and clean (NPA) progress (NPA) remained on a downward trend, it was said.