The ratio of accounts in the special mention account (SMA)-2 category of the private sector non-financial wholesale segment rose to 7.2% as on November 30, 2020, from 1.7% on September 30, 2020, the Reserve Bank of India (RBI) said in the December 2020 edition of its financial stability report (FSR).
The sharp rise in SMA-2 loans coincided with the Supreme Court’s stay on recognition of bad assets after August 31.
SMA-2 loans are those where repayments have been overdue between 61 and 90 days and their ratio as a share of advances signifies the level of incipient stress in the system. Once an account remains irregular for 90 days, it is classified as a non performing asset (NPA) or a bad loan.
An examination of the transition of a constant sample of non-PSU non-financial wholesale performing exposures to SMA status between August and November 2020 reveals accumulation of outstanding in SMA-0/1/2 categories, although the aggregate outstanding has remained flat, the RBI said.
A similar accumulation of exposure is seen when gross outstanding at every SMA cohort is compared between 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 said.
Interestingly, corporate asset quality had been on the mend through the first half of FY21. The share of large 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 same time, the share of restructured standard advances increased, indicating that large borrowers have started availing restructuring benefits extended for borrowers facing Covid-related stress.
The proportion of substandard and doubtful advances contracted while that of loss assets increased, reflecting ageing of the NPA portfolio. As of September 2020, the top 100 large borrowers accounted for 17% and 33.7% of banks’ gross advances and large 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 said.