Banks in the country are likely to see a spike in their non-performing assets ratio of 1.9 percent and credit cost ratios of 130 basis points in 2020, reflecting the economic slowdown following the COVID-19 crisis, a report said.
In the report entitled “For Asia Pacific Banks, COVID-19 Crisis Can Add USD 300 Billion In Credit Costs,” S&P Global Ratings said, the non-performing assets (NPA) ratio for the Chinese banking sector is expected to be about 2 percentages will increase in 2020, and credit losses will increase by about 100 basis points.
About India, the report said, “The NPA ratio in India is likely to be similar to that of China (1.9% versus 2%), but credit cost ratios may be worse and increase by about 130 basis points,” the credit analyst said. rating agency. Gavin Gunning said in the report.
Gunning said there are concerns that the coronavirus will spread faster, further and longer. “This will exacerbate the economic pain we already expect for 2020. Financing conditions can also become sour as investors become more risk averse. This would bring in bank credit, ”he said.
The report noted that in 2020 there will be an additional $ 300 billion spike in lender credit costs and an increase (NPAs) of $ 600 billion due to the negative impact of the corona virus pandemic. Although banks are not as exposed as the corporate sector in the initial phase of the pandemic, the pressure on lenders may ultimately be great. Banks are facing a second-order hit compared to corporate and households.
The report said the economic storm triggered by COVID-19 will test the resilience of the ratings of the region’s 20 banking sectors. “The resilience of banks’ asset quality in 2020 depends in part on the success of policy responses from governments and regulators. These measures are at an early stage. Some have begun, some are under planning and we suspect there is much more the wings are on, ”Gunning said.
Governments, central banks and supervisory authorities in Asia-Pacific have implemented various measures to tackle COVID-19. These include liquidity injections, targeted loans to affected industries and regions and policy rate cuts.
It also includes support for banks to provide for the treaties of otherwise economically viable households and businesses circumvented by COVID-19.
In its seventh bimonthly monetary policy, which was announced on March 27, the RBI lowered the repo rate by 75 basis points to 4.40 percent. It announced it would provide Rs 3.74 lakh crore liquidity to banks through a reduction in its cash reserve ratio, by conducting targeted long-term repos transactions (TLTRO) and by increasing the marginal permanent facilities (MSF) limit. increase to 3 percent.
RBI also allowed a three-month deferral on all outstanding loans on March 1, 2020 to borrowers from all commercial banks, including regional rural banks, small finance banks and local banks, cooperative banks and NBFCs, including home finance companies and microfinance institutions.
“The comparison underpinning policy responses is simple in theory but difficult in practice and always involves significant tax costs,” Gunning noted.