A surge in COVID-19 cases across the nation and restrictions to prevent further spread may increase bad debts again, fear economic experts. The loans given by banks to microfinance institutions, small businesses and unsecured loans like credit cards and personal loans are most vulnerable and likely to turn into non-performing assets (NPAs).

The gross NPAs had been going down in the latter half of 2021 as the country moved past the second wave of the pandemic. The NPAs were down from 7.48 percent in March 2021 to 6.9 percent in September 2021. However, the percentage may shoot up again if restrictions on movement are imposed.

In a December 30 note to clients, Emkay Global Financial Services said, “SME/MFI remain the most vulnerable segments, and thus banks with relatively higher exposure to these segments like Bandhan Bank, Ujjivan Small Finance Bank, IndusInd Bank, Axis Bank, RBL Bank, City Union Bank and DCB Bank could be at relatively higher asset quality risk."

Looking at the current trend of rising COVID-19 cases, experts say there is every possibility of more restrictions being put in states to check community transmission of the virus.

Acknowledging the likelihood of a rise in NPAs, public sector banks are taking utmost caution while doling out loans. The portfolios of loan seekers are being assessed thoroughly to ensure their capability to repay.

However, there is a silver lining. This time around, more people are vaccinated, and thus, most of those catching COVID are recovering without needing hospitalisation. Analysts feel state governments won't go for a hard lockdown if hospitals don't get overwhelmed.

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(Edited by : Thomas Abraham)