NPAs may jump in next two quarters; concerns mount over retail, small biz loans, says Federal Bank MD

Loans to small businesses and retail borrowers may significantly rise in the next two quarters if the economic conditions fail to improve. Federal Bank’s fresh slippages may rise by over 30 per cent amid the challenging economic conditions, Shyam Srinivasan, MD & CEO of Federal Bank told PTI. Shyam Srinivasan added that there is no large chunk corporate loan which it feels may slip into NPA. The expected slippages are on account of the retail, agricultural sector, and small business loans that may not be able to meet the criteria laid down under the one-time restructuring framework announced by the Reserve Bank of India.

While the growth in corporate credit is low in the current fiscal, the same in retail and small business loans is expected to be higher. In July’s Finacial Stability Report, the RBI showed that the gross NPA ratio of all SCBs may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario. It added if the macroeconomic environment worsens, the ratio may further escalate to 14.7 per cent under the very severely stressed scenario.

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The report had mentioned that the PSU banks are expected to take the strongest blow from rising NPAs as their GNPA ratio of 11.3 per cent in March 2020 may increase to 15.2 per cent by March 2021 under the baseline scenario. Given the uncertainty mounting over the banking industry, RBI Governor Shaktikanta Das had said that the country’s financial system is sound but lenders should desist from extreme risk aversion during the Covid-19 pandemic and beyond. He had added that the top priority for banks and financial intermediaries should be for augmenting capital levels and improve resilience. He had further said that banks have to remain extremely watchful and focused as financial sector stability is a prerequisite for giving confidence to businesses, investors, and consumers.