Business loan delays over 60 days skyrocket


A leading indicator of stress in the banking system is flashing red.

Data released by the Reserve Bank of India (RBI) in its Financial Stability Report (FSR) showed an increase in the number of corporate borrowers that have delayed repayments by more than 60 days since the end of the RBI moratorium August 31.

Wholesale loans, excluding those to public and financial enterprises, with maturities between 61 and 90 days (called special mention 2 accounts or SMA2 loans) increased to 7.2% of assets standard at the end of November compared to 1.7% at the beginning of November. September, RBI data showed. Bank term loans overdue by up to 30 days as SMA-0 accounts. SMA-1 are those overdue by 31 to 60 days.

The data sheds light on the extent of stress caused by the pandemic-induced economic slump, which has reduced the ability of businesses and individuals to repay their debts. Indian banks’ asset quality issues were masked by the six-month moratorium on repayments followed by a Supreme Court-ordered standstill on asset classification.

“The RBI report shows that the proportion of assets in SMA2 has increased for large corporate accounts. This is a leading indicator of a build-up of stress in the wholesale portfolio category, ”said Sameer Narang, chief economist at the state-run Bank of Baroda.

The latest data shows that even the loan accounts of large companies, considered relatively less affected by the pandemic, are on the verge of turning sour and could add to the already large pile of bad debts.

Although the September 3 Supreme Court order banned banks from classifying certain loans as bad, lenders must classify them as SMA-0, SMA-1, or SMA-2, depending on the extent of the repayment delay. True, these are still classified as standard, as loans only get bad after more than 90 days of delay.

“The end of asset classification inhibits the true underlying economic categorization of assets, although the incipient tilt is towards a worsening, as indicated by the growth of balances in the worst categories for each cohort,” RBI said.

Analysts differed in their estimates of the level of stress accumulated in the system, although they raised concerns about the actual extent of bad debts accumulated.

Kotak Institutional Equities said in a report Tuesday that the RBI forecast puts a lot of emphasis on history and that there has already been a significant default from the large corporate segment in the previous bad debt cycle.

“It seems difficult to assign weight to these non-performing loan (NPL) ratios, especially with the recognition of NPLs behind, on businesses and a repeat over such a short period seems unlikely, especially with consumption of negligible credit in each of the respective sectors, ”the Kotak report noted.

For the 12 months through September 30, RBI data on late repayments of large borrowers — those with fund-based and non-fund-based exposure. ??5 crore or more – showed a drop. Large borrowers account for half of all bank loans and 73.5% of non-performing bank assets.

Although the regulator has allowed banks to recast loans from borrowers affected by Covid-19, there have been few takers for the program, banks said.


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