Parliament Panel Says Lag Impact Of Pandemic May Fuel Bad Loans

Asking the government to refrain from showing "any early euphoria" on reduction in non performing assets (NPAs) of banks, a Parliamentary panel has said that due to some "lag impact" of the Coronavirus pandemic, there could be a rise in bad loans.

The standing committee on finance in its report which was tabled in Parliament today, noted that though the banking system appears to have weathered the pandemic shock well with respect to NPAs, "(the committee) would like to caution against any early euphoria on this count, as there may still be some lag impact of the pandemic for the banking sector".

It further said that absorbing excess liquidity that was injected as part of the pandemic response to stimulate the economy is necessary, as there may be a possibility of an increase in NPAs.

The panel was of the view that prudence is still required and the steps taken by the government to reduce NPAs and to effect recovery should be continued with the same vigour.

The committee was informed that contrary to RBI's Financial Stability Report projections of the gross NPA ratio of commercial banks increasing from 7.48 per cent in March 2021 to 9.8 per cent by March 2022, the NPA figures at the gross level for public sector banks have decreased from 9.11 per cent as on March 31, 2021, to 7.9 per cent at end-December, 2021.