The Indian banking sector has managed to maintain steady asset quality and even improve recoveries despite a brutal second wave of the Covid-19 pandemic.

A study by credit rating firm ICRA said that despite challenges emanating out of the Covid 19 shock, the steady operating profitability and reduced provisioning continued to provide relief to the bottom-line and the capital position of banks.

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The gross non-performing advances (GNPAs) and the net NPAs remained stable at 7.7 per cent and 2.5 per cent respectively for banks as on June 30, 2021 compared to 7.6 per cent and 2.5 per cent respectively as on March 31, 2021. As on March 31, 2020, just when the pandemic hit, gross NPA for banks stood at 8.6 per cent while the net NPA was 3.0 per cent

The report said that of the total restructured loan book of Rs 2 trillion for the banks as on June 30, 2021, the restructuring under Covid 1.0 is estimated at 51 per cent of the total restructuring of Rs 1 trillion, while restructuring under Covid 2.0 is estimated at 31 per cent of the total restructuring which is Rs 0.6 trillion.

However, the Indian banks need to exercise caution as fresh NPA generation rate – slippages– remained elevated during the second wave in absence of regulatory relief such as moratorium. The gross fresh slippages during the first quarter of the current financial year stood at Rs 1 trillion — annualised slippage rate of 4.1 per cent compared to Rs 2.5 trillion — 2.7 per cent during the corresponding period last year.