The country’s largest bank, State Bank of India (SBI), expects total loan slippages and a restructuring of Rs 60,000 crore in the current 2020-21 fiscal year.

The bank has already received a one-time loan restructuring request under the COVID-19 program for Rs 6,495 crore. The demand for retail loan restructuring is around Rs 2,500 crore. In fact, much of the demand for restructuring for retail lending has come from MSME. On the corporate side, 42 corporate clients approached the bank for a restructuring loan of around Rs 4,000 crore.

The additional loan restructuring request until December 2020 is expected to be Rs 13,000 crore, making it a total restructuring of Rs 19,495 crore under COVID-19.

The RBI has given businesses and banks until December 2020 to invoke loan restructuring for a period of two years. The loan classified as restructured will not be treated as an NPA, but banks are free to set aside provisions against such loans. “Much of the further restructuring portfolio would come from companies and a bit from SMEs,” said SBI Chairman Dinesh Khara.

Loan slips during the first half of FY21 are around Rs 6,393 crore. In addition, the SBI said the additional pro forma slips amounted to Rs 14,388 crore in the second quarter of 2020-2021. The bank expects additional slippages of Rs 20,000 crore during the second half of the current year.

The total slippage is set at Rs 40,781 crore.

The provisioning requirement for loan slippages and restructuring estimated at 15 percent of Rs 60,000 crore stands at Rs 9,000 crore. The bank actually provided Rs 7,100 crore in the first half of 2020-2021.

The total slippage and restructuring represents about 2.5% of the loan portfolio of Rs 23.83 lakh crore. The gross NPA is 5.28 percent. If the restructuring and slippage books slip into NPAs, gross NPAs will soar. But the bank still has two quarters to build up provisions against bad debts.

Many suggest that the loans will become NPA once the restructuring of the two-year loans is completed. The NPA issue is hidden today as MSMEs, businesses and retail borrowers have benefited from a moratorium and restructuring since March of this year. Given the slowing economy, there is likely to be an impact on businesses and retail borrowers.

The bank said the major challenge will come from prolonged working capital cycles and declining cash flow for the industry.

The bank’s credit increased 6% year-on-year. “Retail credit growth has returned to pre-COVID levels. We have seen good traction in home and auto loans,” Khara said.

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