Is India staring at a second wave of NPA crisis?

New Delhi: A sector report by an American multinational independent investment bank and financial services company has sounded alarm bells for the banking sector in India. It has said that Bank of Baroda (BoB), Axis Bank, ICICI Bank, and State Bank of India (SBI) could be looking at another wave of NPA crisis emanating from the telecom and the construction sector. It added that there appears to be a divergence between the credit rating assigned and the financial health of the corresponding corporate entity.

A second NPA crisis in the making?

Given the elevated debt serviceability ratio (the higher the ratio the poorer the ability to sustain debt levels), the 'A' rated corporate are the most prone to further credit rating downgrades, the report co-authored by Nilanjan Karfa and Harshit Toshniwal said. It, however, pointed out that debt or interest repayment abilities of 'BBB' and below rated companies have seen an improvement.

"While the interest the coverage ratio for the 'A' rated group declined to about 5.6x in Q1FY20, the lowest in the last 14 quarters, a deeper analysis reveals that the 'AAA' rated companies have declined the most followed by the 'AA' rated ones. The coverage ratio, however, remains well elevated (for AAA and AA rated companies) so it has caused little issue," the report said.

NPAs could be emanating from Anil Ambani Group, DHFL etc

The report suggested that there is a potential "meaningful divergence" between the ratings and the debt repayment ability. YES Bank, Bank of Baroda, SBI, IndusInd Bank, and RBL Bank are amongst the banks are most prone to "high risk" emanating from Anil Dhirubhai Ambani Group (ADAG), Cox & Kings, CG Power, DHFL and Essar Shipping, Jefferies said.

Risk-prone companies include those with AAA rating

Companies, who have not yet defaulted on payments but could be prone to further downgrades, includes those with 'AAA' rating (38 percent), 'AA' rating (36 percent), 'A' rating (11 percent), and 'BBB' or below rating (14 percent), the analysis showed. They cumulatively have a debt worth Rs 33 trillion.

Monday blues on BSE and Nifty

The share market seems to have taken note of the report as most stocks from the financial sector witnessed a steep fall on Monday. Nifty Bank, Nifty PSU Bank and Nifty Private Bank indices were among the top losers, dipping 2.5 percent, 3.5 percent and 2.7 percent, respectively. In contrast, the Nifty50 index lost around 0.8 percent.