The Reserve Bank of India (RBI), in its latest Financial Stability Report (FSR), warned that the gross non-performing assets (NPAs) of scheduled commercial banks in India may rise to anywhere between 13.5 to 14.8 percent by September 2021 from 7.5 percent as of September 2020.
Krishnan ASV of HDFC Securities Institutional Research said that the Reserve Bank has cautioned about NPAs for the second time in two weeks and none of the investors or analysts expected such high GNPA guidance by the RBI.
“I can’t see any of us, whether investors or analysts, assuming a 13.5 percent GNPA. Having said that, this is the second time within a fortnight that the Reserve Bank of India is now flagging the optical illusion around systemic asset quality. Also recall, even in if the headline deterioration in the balance sheet, which is the GNPA number was to balloon, I think what you need to look at is how much more P&L pain has to go through and there maybe it is lot lesser than what the headline impairment that you will see on the balance sheet,” he said in an interview to CNBC-TV18.
Krishnan said that banks like Axis Bank and ICICI Bank have created higher cushion on the balance sheet for standard asset cover. “There will definitely be some evidence around what is the pipeline of assets that need help at each of the banks. We also have a September 2020 number in terms of what these banks have already provided. So some banks like Axis and ICICI are around 2.5 percent standard asset provision. So, you know where these banks are benchmarking themselves as far as their asset quality provisioning is concerned. How much of it will they report in impairment in third-quarter might still be a lower number because the regulatory unwind has not yet happened,” he said.
On PSU banks, he said that there are very few investable names, however, he believes that State Bank of India (SBI) is the only heavyweight worth having in the portfolio forever.
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