Fitch Rating is an international credit rating agency. As per the report on Monday, Fitch Rating said that the policy could help the banks to build capital buffers while putting off full recognition of the current pandemic situation of COVID 19 impact on loan portfolios. According to financial analysts, the reserve bank of India’s decision helps to allow all reconstructing stressed assets will delay the non –performing assets in the banking system, but the present condition wired with the guidelines. It will help to restrict the number of accounts qualifying for the recast window to about 5-8% of outstanding loans.
In the report, Fitch says the policy could open a new window for banks that will impact of the crisis on loan portfolios. At the same time, it is similar to the strategy adopted over 2010-2016 that delayed and make a bad situation for the banks. Fitch believes that the scheme may be designed to give banks more time to increase the capital and it will impact of the crisis on loan portfolios. It also pointed out that currently, several Indian banks including both private and public have announced capital-raising plans, but considering state banks move to be insufficient to minimize anticipated risks without further capital support from the state. As per the analysis, it says that most state banks would struggle to maintain at least 6.125% with a common equity Tier 1 (CET-1) ratio under a stressful present situation.
According to credit rating agency Icra, it expects the reconstructing overall loans around 5-8% as compared to the proportion to loan under the moratorium, which resulted to decline the overall system-wide loans by the end of Q2FY21 from a level of 10-60% across various lenders during the second face of the moratorium. It says that of the estimated 10-15% loans under the moratorium, Icra estimates the slippages of FY2021 at 3-4% of the overall loans of banks and 5-8% could be reconstructed and the rest of 2-3% is likely to output in an increase in overdue loans.
RBI seems to give support to lenders. Icra adding that it helps them to attain a better position based on their experience in the failure of restructured accounts because of the enactment of the insolvency and Bankruptcy Code (IBC). The rating agencies say the bank may face a downward risk regarding capital buffers. However, the policy could help the banks to build capital buffers while putting off full recognition of the current pandemic situation of COVID 19 impact on loan portfolios.
