The Indian banking system is likely to see a spike in asset quality deterioration as a result of ongoing economic disruption.
RBI's recent Targeted Long Term Repo Operation (TLTRO) 2.0 of Rs 25,000 crore also met with a tepid response as bankers remained unwilling to infuse fresh liquidity despite the cut in repo rates as well as relaxation in provisioning norms.
A historical study reveals that regulatory interventions have always been followed by higher gross non-performing loans (GNPLs). After the farm loan waiver in 2008-09, agriculture GNPLs rose from 10.5% in March 2010 to 18% in March 2012. Portfolios at risk for 90 days also increased sharply for microfinance companies (MFIs) after regulatory interventions in 2010 and 2016.
Key takeaways:
Surplus liquidity with the banking system is set to surge to 8-9 trillion rupees by July. However, banks are not showing any willingness to start lending given the shaky business environment.
Learning from past incidents, banks are unwilling to take a risk of a rise in bad assets. As a result, commercial vehicle (CV) loans, unsecured retail loans, MFIs and SME loans are most likely to come under further pressure.
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