The Reserve Bank of India has warned that bad loans, or NPAs, could reach their highest level in 20 years due to the coronavirus epidemic. According to the RBI, bad loans can reach 12.5 per cent by March 2021, from 8.5 per cent in March 2020. It is also possible that if the situation gets worse then it is expected to reach the level of 14.7 per cent. The Reserve Bank (RBI) has expressed this fear in its Financial Stability report.
The central bank also pointed to restructuring the loan. The Reserve Bank said that governments and regulators around the world are reducing the cost of restructuring loans to provide some relief to those affected by the Corona epidemic. By doing this, you can get rid of more capital in exchange for the increased risk. Due to this epidemic, all the earnings made by banks are once again expected to turn into losses.
According to the RBI, bad loans fell sharply to around 11.5% in March 2018. This bad loan was 9.3 per cent in 2019, which was 8.5 per cent in March 2020. The central bank's estimates are based on tests conducted by the bank. According to the analysis, 50 per cent of lenders availed the facility of Moratorium in April. The highest number of MSMEs availed of Moratorium, which is 65 per cent. In second place were the common people, of which 55 per cent took the Moratorium. At the same time, 42 per cent of companies in the corporate sector took advantage of the moratorium.
If the condition of banks' loan book worsens, it will affect the capital buffer and it will be difficult for banks to give loans to companies in times of need. There has been some relief to companies due to deferment in the payment of people, but after the end of this moratorium in August, many banks' loans can be converted into NPAs. Many banks, from ICICI Bank to Yes Bank, have announced raising capital by selling shares to raise capital. The reason for this is that in the coming days, he has the problem of converting his loan to NPA.