New Delhi, Sept 7 (KNN) Heightened stress in retail and Micro, Small and Medium Enterprise (MSMEs) could push out the banking sector’s inflexion point, said India Ratings and Research (Ind-Ra).

Ind-Ra observed that retail lending, considered a safe bastion by lenders, has fallen as the Covid-19 pandemic led to higher delinquencies.

The agency estimates that the asset quality impact in the retail segment has been higher for Pvt Banks with a median rise of over 100 per cent (on a smaller base) in gross NPAs over 1QFY21 to 1QFY22 (about 45 per cent for PSBs). Banks have also undertaken restructuring in retail assets (including home loans), which could have postponed an immediate increase in slippages.

''Overall stressed assets (GNPA + restructured) in the segment are expected to increase to 5.8 per cent by end-FY22 (2.9 per cent),'' it added.

In the case of MSME, notwithstanding the support in the form of the emergency credit line guarantee scheme (ECLGS) and restructuring, slippages could reflect from 2HFY22.

According to the agency, the agriculture sector has seen limited impact of Covid. The incremental stress addition from the corporate segment has been at low levels.

Ind-Ra, however, has maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide Covid-linked stress.

It observed that banks also continue to strengthen their financials by raising capital and adding to provision buffers, which have already seen a sharp increase in the last three to four years.

For FY22, the agency estimates the banking sector’s Gross Non-Performing Assets (GNPAs) at 8.6 per cent (against 10.1 per cent forecast made in February 2021) and stressed assets at 10.3 per cent (11.7 per cent). It expects provisioning cost for FY22 to increase to 1.9 per cent from its earlier estimate of 1.5 per cent.

The agency’s Stable outlook on PSBs takes into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18-FY21 and further Rs 20,000 crore provisioned for FY22).

As per Ind-Ra’s analysis of the impact of a reversal in the long-term yield curve on the investment portfolio of banks, it expects an adverse impact on the profitability with a 100 basis points upward shift in the yield curve.

This could impact the pre-provisioning operating profit of PSBs by 8 per cent and that of PSBs by 3.2 per cent while for the overall banking system, the impact could be 5.8 per cent.