According to a recent report, private banks in India have experienced a significantly higher number of slippages and write-offs from COVID-19-related loan recasts compared to public sector banks (PSBs). The data highlights the ongoing challenges faced by the banking sector due to the economic impact of the pandemic.
The report, compiled by a leading financial research organization, analyzed the financial performance of various banks during the COVID-19 crisis and its aftermath. It revealed that private banks have witnessed a nearly twofold increase in slippages and write-offs compared to their public sector counterparts.Source:- BQ prime
Slippages refer to loans that have turned into non-performing assets (NPAs), indicating that borrowers have defaulted on their repayments. Write-offs, on the other hand, represent the removal of bad loans from banks’ balance sheets after all possible efforts to recover the dues have been exhausted.
The higher slippages and write-offs for private banks can be attributed to several factors. Firstly, private banks have a relatively larger exposure to sectors severely impacted by the pandemic, such as hospitality, tourism, and aviation. The prolonged economic downturn in these sectors has resulted in a higher likelihood of loan defaults.
Secondly, private banks generally have a larger share of unsecured loans, which are more susceptible to default during economic downturns. The report suggests that the COVID-19 crisis has exacerbated the challenges faced by private banks in managing their unsecured loan portfolios.
Furthermore, the report highlighted that private banks’ lending practices were comparatively more liberal than those of public sector banks. The increased flexibility in lending during pre-pandemic times, coupled with the economic disruption caused by COVID-19, has contributed to a higher proportion of bad loans in the private banking sector.
The findings underscore the need for private banks to strengthen their risk management frameworks and adopt more cautious lending practices. The report recommends that private banks focus on enhancing credit appraisal processes, conducting rigorous stress testing, and diversifying their loan portfolios to mitigate future risks.
In response to the challenges posed by the pandemic, the Reserve Bank of India (RBI) has implemented various measures to support the banking sector and promote loan recovery. These include restructuring schemes, loan moratoriums, and liquidity infusion measures. However, the report suggests that the impact of these measures has been relatively more limited for private banks, leading to higher slippages and write-offs.
It is important to note that the financial performance of banks is subject to various external factors, and the data presented in the report reflects a specific period. As the economy gradually recovers from the pandemic-induced downturn, it is expected that the banking sector will witness improvements in asset quality and loan recovery.
The report serves as a reminder for both private and public sector banks to remain vigilant in managing risks and adopting prudent lending practices. The banking sector’s ability to navigate the challenges arising from the pandemic will play a crucial role in supporting economic recovery and ensuring the stability of the financial system.
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