Non-performing assets (NPAs) of banks are most likely to worsen to 11.3-11.6% by the end of 2020. This is an unfortunate and steep rise from the 8.6% as of March 2020.
Latest gross slippages are estimated to be at 5.0-5.5% of standard advances during 2020-21. Thus, this increases the banks’ credit provisions and impacts their earnings.
Owing to the increasing strain on asset quality and profitability, experts estimate that state-owned banks could need Rs 45000-82500 crore in liquid capital in 2020, under weak credit growth scenarios.
Considering the RBI moratorium, asset quality stress in the economy will only reflect in the third and fourth quarters of the 2020-21 results.
Credit provisions shall exceed operating profits for Public Sector Banks (PSBs) in 2020-21. This marks a sixth repeated year of loss. The profitability of PSBS shall moderate with the return on equity (RoE) declining to 3.5-5.1%. No signs or expectations of improvement to 10-12% can be seen.
Further, the incremental credit growth for banks in this fiscal is estimated at close to Rs 6-7 lakh crores. Thus, translating into a year-on-year credit growth amounting to 6-7%.
The increment is most likely driven by 3.54.3% growth by state-owned banks. Further, a 7-9% growth by private lenders in estimated.
Although the lockdown has severely impacted the debt-servicing ability of borrowers, the extent of restoration of economic activities whilst restrictions are being relaxed, shall drive the final impact on the asset quality of many banks.