Covid-19 crisis: Slippages may jump to Rs 5.5 trillion, says India Ratings

Credit costs could touch Rs 2.7 trillion.

Stress emerging from the severe economic shock caused by steps to contain the pandemic may drive total slippages to Rs 5.5 trillion in FY21.
The corporate side may see slippages of Rs 3.4 trillion, and non-corporate side — retail, farming and MSMEs — may account for Rs 2.1 trillion, according to India Ratings.

Banks faced elevated provision pressure (amount set aside for stressed loans) resulting from the corporate stress cycle, from FY16-FY20. For this, they had made substantial provisions and were moving towards a moderated credit cost cycle.

However, the Covid-related measures are likely to result in another cycle of stress. Additionally, the pressure on non-corporate segments, which were already visible before the outbreak, is likely to intensify, said the rating agency.

With a significant drop in economic activity, most sectors in India are expected to experience varying degrees of revenue contraction in FY21, on account of demand and supply disruption. This presents a fresh challenge to banks, which, over the last four years, have been reeling from corporate stress.

Referring to an analysis of 30,000 firms, the rating firm said the total stressed corporate pool may increase from 3.8 per cent of the total bank credit in December 2019, to 6.6 per cent in the post-Covid phase.

The incremental stress is mainly from sectors including power, infrastructure, constructions, hospitality, iron and steel, telecom, and realty.

Referring to non-corporates, it said stress and slippages would aggravate in retail, agriculture, as well as in the micro, small and medium enterprises (MSME) segments. About 40 per cent of incremental slippages could come from non-corporates.