Moody's, in a report on banks, said India’s second Coronavirus wave has increased the asset risk for banks, especially in the retail, as well as the SME loan, segment. However, banks are in a position to withstand the pressures to prevent a sharp rise in bad loans, it said.

In an interview to CNBC-TV18, Alka Anbarasu, vice president & senior credit officer-financial institutions group at Moody's Investors Service, said the credit cost will be high in the near term, but not as high as the level seen earlier. Anbarasu is also the author of this report.

“The rebound in profitability, and perhaps if we do some analytics, especially the profitability of Indian public sector banks is at decades high right now. Therefore, the key driver of the improvement to profitability is a sharp reduction in credit costs, and in that context, the nonperforming loans (NPL) via the pandemic (COVID-19), at least, have not been as high as what we were anticipating at the onset of the pandemic last year or even around this time of the second wave,” she said.

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On new NPLs, Anbarusu said, “NPL formation may increase by 50 percent in this year or over the next 12-18 months because of the pandemic. Having said that, we still expect NPL ratios in the system will remain stable because of underlying credit growth.”

Also Read: Improved buffers will help banks withstand asset risks due to COVID 2.0: Moody’s

According to her, the ECLGS has been quite effective, especially the first scheme. “The Emergency Credit Line Guarantee Scheme (ECLGS) has been quite effective, the first scheme at least has been very effective. Most banks have taken advantage of the scheme and the top-up loans that they gave to customers represent about 10 percent of the bank's small and medium-sized enterprises (SME) loans, and that has helped prevent a sharp deterioration in the asset quality for the SMEs,” said Anbarusu.

For the entire interview, watch the video

(Edited by : Bivekananda Biswas)

First Published:Aug 26, 2021 6:31 PM IST