The ratio of accounts in the unique mention account (SMA)-2 category of the private sector non-economic wholesale segment rose to 7.2% as on November 30, 2020, from 1.7% on September 30, 2020, the Reserve Bank of India (RBI) stated in the December 2020 edition of its economic stability report (FSR).
The sharp rise in SMA-2 loans coincided with the Supreme Court’s keep on recognition of negative assets right after August 31.
SMA-2 loans are these exactly where repayments have been overdue among 61 and 90 days and their ratio as a share of advances signifies the level of incipient strain in the method. Once an account remains irregular for 90 days, it is classified as a non performing asset (NPA) or a negative loan.
An examination of the transition of a continuous sample of non-PSU non-economic wholesale performing exposures to SMA status among August and November 2020 reveals accumulation of outstanding in SMA-/1/2 categories, though the aggregate outstanding has remained flat, the RBI stated.
A equivalent accumulation of exposure is noticed when gross outstanding at every single SMA cohort is compared among August and November 2020. “Admittedly, the asset classification standstill inhibits the true underlying economic categorisation of assets, although the incipient tilt is towards worsening as indicated by the growth in balances in the next worse categories for each cohort,” the report stated.
Interestingly, corporate asset top quality had been on the mend by means of the initially half of FY21. The share of huge borrowers in the aggregate loan portfolios and gross NPAs of banks declined to 50.5% and 73.5% respectively in the quarter ending September 2020. At the similar time, the share of restructured typical advances improved, indicating that huge borrowers have began availing restructuring advantages extended for borrowers facing Covid-associated strain.
The proportion of substandard and doubtful advances contracted when that of loss assets improved, reflecting ageing of the NPA portfolio. As of September 2020, the best one hundred huge borrowers accounted for 17% and 33.7% of banks’ gross advances and huge borrower loans, respectively. “Although this represented a decline vis-à-vis March 2020, the share continued to remain above pre-Covid levels, indicating persisting credit concentration,” the report stated.