Relatively tighter norms could lead to loan restructuring of only about 5-8% of the overall loan book of banks, credit rating agency ICRA said on Tuesday.

Stating that regulations such as eligibility of only SMA-0 (special mention accounts-0) borrowers as on March 1, 2020, independent credit assessment of the resolution plans (RP) and a higher upfront provisioning requirements would come into play, ICRA said the proportion of loans under moratorium is expected to decline to 10-15% of the overall system-wide loans by end of Q2 FY21 from about 10-60% levels across various lenders during moratorium phase II.

The system-wide SMA-1 and SMA-2 stood at 6% of the loan book of the banks as on March 31, 2020, and ICRA said a large portion of these loans are expected to be part of the moratorium loan book and will be most vulnerable to slippages in FY21, as the RP under August 6, 2020, circular cannot be implemented on these loans.

“Of the estimated 10-15% loans under moratorium, we estimate slippages for FY21 at 3-4% of the overall loans of banks (largely the SMA-1 and SMA-2 pool as on March 31), 5-8% could be restructured and 2-3% is likely to result in an increase in overdue categories of loans,” said Anil Gupta, VP, financial sector ratings, ICRA.

ICRA had earlier projected a slippage of 5-5.5% for the banks during FY21, driving a rise in gross NPAs to 11.3-11.6% by March 31, 2021.

“With expectation of reduced slippage of 3-4% we expect the GNPAs to increase to 9.8-10.3% by March 31, 2021 from 8.5% as on March 31, 2020,” ICRA said.

“A lower slippage will also reduce the capital requirements for the banks. We had earlier estimated capital requirements for public sector banks at ₹460-₹826 billion for FY21 and ₹250-₹483 billion for private sector banks during FY2021-22, which will now decrease,” it said.

“Our broad estimates show that the capital requirements for PSBs could decline to ₹200-₹555 billion for FY21 and ₹220-₹334 billion for private sector banks during FY2021-22,” it added

It said the private sector banks may raise capital higher than its estimates as their capital raisings are for next 3 years of growth cycle.

While the invocation of bankruptcy proceedings are currently suspended, however if the RP fails, banks can invoke bankruptcy proceeding against such companies later, ICRA said.

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