A placement document of Bank of Baroda (BoB), for an equity fundraise, shows the lender’s unique mention accounts (SMA) ratio surged to 21.57% as on December 31, 2020, from 8% on March 31, 2020. This would recommend that lenders’ collection efficiencies do not adequately reflect the level of pressure in the method.
To be fair, the BoB management has signalled that the restructuring scheme might have been unable to address pressure in the retail and micro, modest and medium enterprises (MSME) segments, and there might be discomfort ahead.
Bank of Baroda MD and CEO Sanjiv Chadha stated in January, “In terms of the known unknowns, things which have not fully played out yet that is where the MSME and retail are…Particularly, retail is the kind of book which was not being stress-tested.”
He added: “The kind of stress we are seeing now is something which is unprecedented and therefore it is likely there may be some slippages which you can’t anticipate.”
The SMA ratio indicates the share of a bank’s loans that have been delinquent for amongst 1-90 days. BoB’s SMA- ratio, or accounts exactly where repayments have been delayed by 1-30 days, contributed to considerably of the surge, increasing to 13.44% from 5.47% in the course of the period beneath evaluation. SMA-2 accounts, exactly where the repayment delay ranges amongst 61 and 90 days, shot up to 5.52% from 1.41%.
Earlier, a higher bounce price on EMI transactions had raised an alarm about the degree of delinquencies in lenders’ retail books. The National Payments Corporation of India (NPCI) has not however released this information point for January or thereafter immediately after the bounce price was identified to be persistently higher at about 40% for months at a stretch.
There have been issues, also, about the 90%-plus collection efficiency numbers getting reported by banks and non-bank lenders. Analysts are now questioning the wisdom of conflating collection efficiencies with asset excellent.
On Monday, Kotak Institutional Equities (KIE) stated in a report that the information provides additional credence to its view that there is a distinction amongst collection efficiency and probable slippages that could be reported by lenders. “Information asymmetry is quite high and it would be useful for banks to report SMA and 90+DPD (days past due) as it provides a better understanding of the stress,” the report stated.
The regulator is not especially sanguine about undesirable assets staying beneath handle, either. Loan losses in the banking sector, as measured by the gross non performing asset (GNPA) ratio, could practically double to 13.5% by September 2021 in a baseline situation, and to as higher as 14.8% in a serious-pressure situation resulting from the pandemic, the Reserve Bank of India (RBI) had stated in the December 2020 edition of its monetary stability report (FSR).
The ratio of accounts in the SMA-2 category of the private-sector non-monetary wholesale segment rose to 7.2% as on November 30, 2020 from 1.7% on September 30, 2020, according to the FSR. The sharp rise in SMA-2 loans coincided with the Supreme Court’s keep on recognition of undesirable assets immediately after August 31.