Indian banks are sitting on Rs 1.2-1.4 lakh crore worth unrecognized bad loans as on December, 2020. As per the pro forma disclosures made so far—following the Supreme Court’s order on standstill for asset classification—22 banks have reported pro forma gross NPAs of about Rs 8 lakh crore. While Care Ratings pegged unrecognized bad loans at Rs 1.2 lakh crore, ICRA Ratings (which analysed 17 banks’ data) estimated unrecognized bad loans worth Rs 1.4 lakh crore in the system.
Of the Rs 8 lakh crore, eight public sector banks reported majority of the pro forma gross NPAs at Rs 6 lakh crore followed by 14 private banks constituting the rest. SBI alone reported highest pro froma gross NPAs at over Rs 16,000 crore. The good news is that most banks have made extra provisioning for NPAs that may arise in future, so the impact on banks’ balance sheet may be visible in the current and subsequent quarters.
As per the RBI’s Financial Stability Report, gross NPA ratio may double from 7.5% last September to 13.5% this September under the baseline scenario, and if the macroeconomic environment worsens into a severe stress scenario, it may worsen to 14.8%. The quantum of bad loans fell to Rs 7.5 lakh crore as on December, 2020 as against Rs 8 lakh crore during September quarter. A year before, they stood at Rs 9.4 lakh crore. The gross NPA ratio improved to 7% during the December quarter as against 9.3% last year.
PSBs accounting for 78% share of bad loans saw their gross NPA ratio drop to 8.7% of total advances as on December, 2020 compared to 11.3% a year ago. Subsequently, banks’ provisions in Q3 declined in Rs 0.62 lakh crore compared to a year before, but increased from Rs 0.54 lakh crore reported in September, 2020 due to an increase in provisiong for accounts that have not been classified as NPAs following the SC order.
Banks have been mandated to make 10% additional provisionnng over two quarters 5% each in March and June 2020 on loan accounts, where moratorium benefit was extended, which resulted in banks providing higher additional provisions beyond the RBI’s mandattot rate during both quarters.