With the second wave of COVID-19, banks are preparing to angrily increase plans for the April-June quarter to monitor potential losses on their loans due to a resurgence of the disease. Provisions refer to money set aside to cover possible losses on loans when customers fail to pay on time. A loan becomes an NPA if there is no interest paid or interest principal within 90 days.
Although lenders have so far declined to offer guidance on the value of the offers, analysts estimate that the value of the new banking offer could be as high as R5,000 billion after the impact of the second wave of COVID.
While COVID cases in India began to decline a few weeks ago, April and May were the worst months of the financial plan collection. Locking in multiple locations and fears of contracting the virus did not allow many of the team’s staff to carry out their duties.
In Q4 of FY20, banks had violently provided rs 95,000 crore and then in succession, the number continued to decline, said Anil Gupta, vice-president and head of sector – financial estimates, ICRA.
Given the level of provision made last year, it prevents large private banks, lenders have so far not made additional large amounts of COVID in Q4FY21.
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“As the situation worsens in May and June, asset prices are likely to be affected and accommodation provisions are up for Q1FY22,” Gupta said, adding, “However, we expect it not to rise above the levels seen in Q1FY21, which is Rs 56,000 crore or 2.3% development (done annually). ”
The high supply could hurt the bank’s profits, Gupta said.
In a report on April 15, Brickwork Ratings analysts wrote that banks should be more financially compliant with the legal requirements “Considering the current asset quality pressure and potential increase in the near future, BWR considers keeping capital and proportional support rates of at least 1% above Basel’s guidelines III will help banks’ desire to improve their credit risk, “the report said.
HDFC Bank has provided a total amount of approximately Rs 1,300 crore to Q4FY21, including other related provisions. ICICI Bank has made some RV-related conditions related to COVID-19 Rs during the Q4FY21 period, while Axis Bank has set aside COVID offers of R5,012 million per quarter.
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For their part, banks have been cautious about providing guidance on credit costs or provision. State Bank of India chairman Dinesh Khara told analysts that small, medium and micro enterprises and agricultural loan components should be considered. “To put it bluntly, we like to keep it (credit) at 1.12% in this quarter. But still, less than 2% in every way, ”said Khara after the SBI Q4FY21 results.
Similarly, HDFC Bank has stopped looking at the offer, to continue. “There is not enough information on the economic impact of the second wave at the moment to stay in size (project)
exactly what we have. But somehow, we are thinking of a few last reserves, we have improved beyond enough buffers, ”Jimmy Tata, head of credit and market risk, HDFC Bank, told analysts after the bank’s Q4FY21 results.
There are others like Axis Bank, who say that this process has made it completely unfair. “We have reviewed and anticipated further strengthening of our provisioning rules or a change in accounting policy at FY22 that could have a significant impact on our reported numbers,” said MD & CEO Amitabh Chaudhry after the Q4 results.
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Chaudhry added that the supply of COVID continues to stagnate at Rs 5,012 crore in the bank despite a 50 percent reduction in stress compared to what was thought by its strains last year at the start of the epidemic.
Few lenders like Bank of Baroda (BoB) expect the cost of the loan to go down.
However, it may be necessary for banks to subsidize their capital buffers at some point, especially as the regulator continues to persuade them to do so. Last month, the governor of the Reserve Bank of India, Shaktikanta Das, met with senior executives of state-owned enterprises and private banks and asked them to focus on strengthening their balance sheets appropriately.
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