As per the Reserve Bank of India (RBI), a loan is considered a “bad loan”, or an NPA when the interest due for any quarter is not fully paid within 90 days from the end of the quarter. However, this time period may vary based on the terms and conditions agreed upon by the bank and the borrower.
When a bank offers a loan, it charges interest on the amount, which is why it is regarded as an asset to the bank. When the borrower stops paying the interest, or the principal, or both, the lender loses money. Such a loan then becomes a non-performing asset (NPA) for the bank. The banking industry in India is seriously affected by the NPA crisis with the rising number of defaulters.
he economic fallout of the pandemic is expected to push up non-performing assets (NPAs) of the banking sector, Reserve Bank of India (RBI) said on Friday, estimating the ratio of gross NPAs may rise to 12.5% by March next year, in a baseline scenario. The central bank’s Financial Stability report (FSR), noted the NPA ratio could jump to as high a level as 14.7% in the event of severe stress.
the report reveals that nearly half of the outstanding credit till April 30, was under moratorium, somewhat higher than estimates provided by bankers. A total of 48.6% customers by number and 50.1% by value had made use of the moratorium till April 30. While 66.6% of borrowers at state-owned banks opted for the deferral, the share for customers at private sector banks was 49.2%. Non-banking financial companies (NBFCs) had granted a moratorium to 49% of their customers.
The level of deferrals, availed of by borrowers, is being closely monitored as it reflects the potential stress in the system. Analysts at Macquarie had estimated the extent of loans under moratorium at 25-30% at the end of May. “The regulatory dispensations that the pandemic has necessitated in terms of the moratorium on loan instalments and deferment of interest payments may have implications for the financial health of banks going forward,” RBI cautioned.
Banks have observed there is a declining trend in the number of borrowers who want to delay repayments. HDFC said the share of its retail loan book, under moratorium, was down to 7% as of June 15 from 21% in May. Axis Bank reported that 9.7% of its outstanding loan book was under moratorium as of June 30; in April this number was 25%.
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