The Federal Bank expects spurt in NPAs in the next two quarters if economic conditions do not improve

Federal Bank has stated that it fears an increase in assets that have defaulted higher than usual (NPA) over the next two quarters of loan to small businesses and retail borrowers if economic conditions do not improve.

In contrast to the usual speed of 300-350 crore in new slides per. Quarterly, the number could go up by more than 30 percent if the economy remains challenging, its CEO and CEO Shyam Srinivasan told PTI.

He said the Rs 300 crore slippage number excludes the company’s progress and made it clear that there is no large piece of corporate loan that it feels can slip into the NPA.

The bank had reported slippages at Rs 3 crore for the September quarter, but revealed that the same number would have been Rs 237 crore if not for the stress treatment mandates. It had also set aside money as provisions according to the higher number.

Srinivasan talked about the increase in slippage as it expects, explaining that many accounts in the retail, agricultural sector and small businesses may not be able to meet the criteria of the one-off structuring framework announced by India Reserve Bank.

He said the bank will be proactive in recognizing such slips and will set aside money as credit terms when and when assets slip into the NPA, which could lead to an increase in credit costs.

The lender had decided to set aside additional provisions for COVID-related stress in the September quarter, which was one of the reasons why the net result was reduced by 26 percent despite the fact that the operating profit was at a highest level.

The bank expects to close FY21 with credit growth of up to 9 percent, he said, adding that it will accelerate to normal levels of between 15-18 percent from FY22 onwards.

Growth in corporate credit is low in the current fiscal policy, but the same in loans to smaller companies and smaller companies is higher, he said.

The bank fears no impact from the diaspora’s decline in remittances, Srinivasan said, pointing out that it has increased its market share in such flows over the past few years and that its share is now at 17.5 percent.

Growth in both non-resident Indians and domestic deposits has been beautiful in the September quarter, and the share of low current and savings account deposits has crossed 30 percent, he added.

The bank aims to launch its credit card offering by 2021, Srinivasan said.