How bad loans of Indian banks shot up during Covid-19

India’s banking system recorded an over 50% jump in the stock of bad loans during the 15months of the Covid-19 pandemic, adding to the gross stressed assets in the books, brokerage house Nomura Securities said in a report.

Stressed loans shot up by additional Rs 4.60 lakh crore between April 2020 and June 2021, catapulting the gross pressured loans ratio to 12.6% of the loan book from 8.2% of the total as of March 2020, it estimates.
Of this, the financial system added Rs 3.7 lakh crore in loans due for the previous 90 days on top of restructured assets after adjusting for recoveries and write offs.

This has taken the overall gross NPA and restructured loans of banks and non-banking finance companies (NBFCs) to Rs 13.2 lakh crore.

The report comes at a time when many investors in the stock market have been wary of picking banking stocks as they see a lack of transparency in the state of their loan books. “It would not be too out of place, in our view, to suggest that the entire increase in stressed asset pool is on the March 2020 asset base and stress contribution from incremental lending in FY21 would be rather limited,” Nomura analysts said in the report.

The stress levels in the books of the banks remains much higher although the jump in bad loans of NBFCs is equally alarming. The gross NPAs moved to 13.3% in June 2021 compared to 8.9% in March 2020 for banks. 

For NBFCs, together with loans given via the government-sponsored Emergency Credit Line Guarantee Scheme (ECLGS), this more than doubled to 6.7% from 3.1% in the same period.

At a micro level, LIC-controlled IDBI Bank is believed to have the most pain with over a third (36.7%) of its loans under stress. Private-sector lender HDFC Bank, the most valued local lender, is in the best spot with 6% bad loans and ahead of Axis Bank that has 6.8% of loans under stress together with restructured loans.
Among the private lenders, Yes Bank and Bandhan Bank are under the most stress with NPA levels of 20% or more.

State-owned banks have restructured a good proportion of loans under the Covid-19 one-time restructuring schemes, corporate debt restructuring schemes and the RBI’s MSME restructuring scheme.
“Between Mar’20 and Jun’21, state-owned banks’ share in incremental restructuring across all schemes is 78%, and the balance is with private sector banks,” the Nomura report noted.