Economic Insights of india

Due to this outbreak there are many disparities in the economy of India.

Impact of lockdown on banks

We know that the entire economy is disturbed , the entire economy is going through struggle because of this nationwide lockdown.

The banking system of India and the entire banking system has been in trouble due to the covid-19 and because of the worldwide economic slowdown. This results in build up of Non- Performing Assets (NPA).

Disruption caused to business operations and supply chain during the lockdown period will take time to repair. Even though in this lockdown Reserve Bank of India (RBI) is continuously monitoring and concerned towards normalizing the situation for which Reserve Bank of India (RBI) has injected fresh liquidity into the banking system and given banks leeway to deal with potential stress in loan accounts.

Even though Reserve Bank of India (RBI) has reduced Repo Rate in an unusual monetary policy committee review meeting. Also the Counter Cyclical Buffer (CCB) has been reduced and all this rooms have been provided by Reserve Bank of India (RBI) to cope up the situation but these are not enough to bring back the banking sector into normalcy.

There is a chance of increase in Non-Performing Assests (NPA)

NPA means Loans or advances that are in default or are in arrears on scheduled payment of principal or interest.

Loan payments have not been made for a minimum period of 90 days.

CONCERNS OF THE BANKERS

Fresh NPAs

The lockdown would cause pain to lenders especially in loans accounts from sectors including Micro, Small and Medium Enterprise (MSMEs), Airlines, Real estates, Auto-dealer, Industrial segments & Transportation segments.

Banks are concerned about MSME loans and those extended to manufacturing sectors such as auto, steel, transportation segment, as those where fresh NPAs are looming.

According to Reserve Bank of India’s financial stability report

The share of large borrowers in scheduled commercial banks’ total loan portfolios and their share in GNPAs was at 51.8% and 79.3% respectively in September 2019.

Problem with different sectors

Even if the lockdown is lifted on May 03, operation of a number of companies in specific sectors will not see business getting back to normal as the labour has moved out in different states where they belong to because of this there was a delay in production and the production may not be able to restart because there is spread of fear in the mind of manpower.

Capital intensive sectors such as Aviation, Real estate, Consumer durables and Jewellery may take long time before there is a demand revival.

Fear of extended lockdown

Measures by the RBI will provide banks some relief during the next 3 months but a build up of bad loans looks inevitable.

While moratorium provides temporary relief to the borrowers and help check the NPAs during that period . But in current scenario the moratorium period doesn’t seems effective from the point of view of borrowers.

Extended lockdown is expected to have a significant adverse effect on the economy.

Analysis by different Rating Agencies

Moody’s Investor Service

It expects deterioration in banks assets quality due to disruption in economic activity. It has changed the outlook for Indian banking system to negative from stable.

According to a report released by CRISIL

The asset classes will see continue pressures on asset quality due to weaker profiles of borrowers and expectation of only a gradual economic recovery.

According to CRISIL, there are 3 categories of resilience:

High Resilience Category :- Telecom, FMCG, Fertilizer, Oil, Pharma are among the sectors comprising nearly 44% of the debt.

Moderate Resilience Category :- Another 52% debt is in sector such as automobile, manufacture, power, road and construction.

Least Resilience Category :- 4% of debt in sectors such as airline, gems and jewellery, auto dealers and real estate, given the discretionary nature of goods and service and weak balance sheets.

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