NPAs to rise in 12-18 months: S&P

According to S&P, the banking system's credit costs will remain elevated at 2.2-2.9 per cent this year and next

New Delhi: Non-performing loans in the Indian banking sector is likely to witness an uptick and may shoot up to 11 per cent of gross loans in the next 12-18 months, S&P Global Ratings said on Tuesday.

It said forbearance is “masking” problem assets for Indian banks arising from COVID-19 and the financial institutions will likely have trouble maintaining momentum after the proportion of Non-performing loans (NPL) to total loans declined consistently so far this year.

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“While financial institutions performed better than we expected in the second quarter, much of this is due to the six-month loan moratorium, as well as a Supreme Court ruling barring banks from classifying any borrower as a non performing asset,” S&P Global Ratings credit analyst Deepali Seth-Chhabria said.

In its report titled “The Stress Fractures In Indian Financial Institutions”, S&P said with loan repayment moratoriums having ended on August 31, 2020, NPLs in the banking sector will likely shoot up to 10-11 per cent of gross loans in the next 12-18 months, from 8 per cent on June 30, 2020.

According to S&P, the banking system’s credit costs will remain elevated at 2.2-2.9 per cent this year and next.

“Resumption of economic activity, government credit guarantees for small to mid-size enterprises, and buoyant liquidity is helping to limit stress. Our NPL estimates are lower than previous but we are still of the view that the sector’s financial strength will not materially recover until fiscal 2023 (ended March 31, 2023),” it said.

According to S&P, 3-8 per cent of loans could get restructured.

AIBEA to join trade unions in strike

The All India Bank Employees’ Association (AIBEA) on Tuesday said it would be joining the one-day nationwide strike on November 26 called by central trade unions to protest against the government’s anti-labour policies.

Ten central trade unions, except Bharatiya Mazdoor Sangh, will observe a nationwide general strike on November 26. “Lok Sabha in its recently held session has passed three new labour enactments by dismantling existing 27 enactments in the name of ‘Ease of Business’, which are purely in the interest of corporates. In the process, 75 per cent of workers are being pushed out of the orbits of labour laws since they will have no legal protection under the new enactment,” the AIBEA said in a release.

The association represents the majority of the banks except State Bank of India and Indian Overseas Bank. It has four lakh bank employees from various public and old private sector and a few foreign banks as its members.

In Maharashtra, around 30,000 bank employees from 10,000 bank branches of public sector banks, old generation private sector banks, regional rural banks and foreign banks are observing the strike, the release said.

The union said bank employees on November 26 will also focus on their demands such as opposition to bank privatisation, opposition to outsourcing and contract system, adequate recruitment, stern action against big corporate defaulters, increase in rate of interest on bank deposits and reduction in service charges.

“The present government is pushing its agenda of privatisation in the name of ‘Aatmnirbhar Bharat’, and is resorting to large scale privatisation in core sector of the economy which includes banking,” the release said.

LVB tanks over 53% in 6 days

Shares of Lakshmi Vilas Bank continued to face selling pressure for the sixth consecutive day and have tanked over 53 per cent during the period amid negative reports around the company.

On Tuesday, the stock plunged 9.88 per cent to Rs 7.30 — its lower circuit limit as well as one year low — on BSE.

At NSE, it plummeted 9.88 per cent to Rs 7.30 — its lowest trading permissible limit for the day.

Since last Tuesday (November 17), the stock has tanked 53.35 per cent on the BSE.

The government has placed Lakshmi Vilas Bank (LVB) under one-month moratorium, superseded its board and capped withdrawals at Rs 25,000 per depositor.

The step was taken on the advice of the Reserve Bank of India, in view of the declining financial health of the private sector lender.

LVB is the third bank to be placed under moratorium since September last year after the cooperative bank PMC in 2019 and private sector lender Yes Bank this March.

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