Private banks' slippages, write-offs from COVID recast nearly double than that of PSBs: Report

Banks are seeing the best-ever asset quality in the past 10 years, it said, adding the gross non performing assets (GNPAs) ratio for the banking system improved to 4 percent at the end of FY23.

Private sector banks' slippages and write-offs from loans restructured after the COVID-19 pandemic are nearly double than that of their state-owned peers, a report said on Friday.

Private sector banks have seen slippages and loan write-offs at 44 percent, as against 23 percent in case of public sector banks, the report by India Ratings and Research (Ind-Ra) said, calling the trend surprising.

The domestic rating agency analysed annual results of lenders for FY23. It found that the peak of restructured assets in bank books was in September 2022, when the overall quantum of recast loans had touched Rs 2.2 lakh crore. While there could be some more slippages, banks are of the view that the performance of the restructured portfolio would broadly mirror the performance of the overall portfolio, it said.

It can be noted that in the aftermath of the pandemic, which led to a hasty lockdown that led to a contraction in the economy, the RBI had announced a restructuring scheme followed by another one. Ind-Ra said the COVID restructuring experience has been relatively benign, despite the unpleasant experiences in the past with similar schemes. On the overall asset quality front, it said banks are close to a clean slate as all of them reported improvement on asset front in FY23.

Banks are seeing the best-ever asset quality in the past 10 years, it said, adding the gross non performing assets (GNPAs) ratio for the banking system improved to 4 percent at the end of FY23. For state-owned banks, GNPAs improved to 5 percent in FY23 from the peak of 14.1 percent in FY18, while the same for private sector banks stands at 2.3 percent from 6.3 percent. For state-owned banks, GNPAs improved to 5 percent in FY23 from the peak of 14.1 percent in FY18, while the same for private sector banks stands at 2.3 percent from 6.3 percent.

Both categories of banks are also seeing a convergence in their asset quality and credit cost related parameters, it said. Explaining the reasons for the improvement, Ind-Ra said banks have strengthened their processes with the use of technology and rule-based approach to credit, stringent KYC norms, and centralising the sanctioning authority over the past many years.

The pandemic helped weed out weak borrowers in almost all segments, it said, adding that nearly 40 per cent of the stock of loans are the ones made after FY21 with tighter credit norms and filters. Over the next two-three years, as banks' risk appetite increases and competition intensifies, banks would look for growth opportunities and build risk, it said, cautioning that lenders build up risk in good times.

It, however, said that while lenders' dependence on the retail segment has been high, there are no alarming signals anywhere. The transition to the Expected Credit Loss (ECL) system of loan provisioning will be manageable, Ind-Ra said.