January 2022


From Chief Ratings Officer’s Desk


The National Statistical Office (NSO) has pegged the YoY expansion in the GDP and GVA in FY2022 at 9.2% and 8.6%, respectively. However, these early estimates are based on data till mid-Q3 FY2022, and therefore have not factored in the evolving Omicron impact on economic activity. The YoY expansion in GDP in FY2022 is broad-based, but the absolute GDP is only a shade higher than the pre-Covid level of FY2020. Concerns persist that the Omicron-induced restrictions may derail the nascent recovery in the contact-intensive sectors, despite increasing vaccine coverage. ICRA expects the impact of such restrictions to push the GDP growth rate for FY2022 moderately below its forecast of 9.0%.

We also examine the long-term impact of the commitments on emission control made by India at the recent Glasgow COP26 summit. The country will benefit from investments in new technologies in energy efficiency, carbon reduction and green fuels etc. This is likely to attract investment in billions across sectors. However, a focused roadmap is necessary to achieve targets set for 2030 and the net zero target by 2070. This not only calls for Government interventions but also maintaining a fine balance so that the growth in a developing economy is not compromised, as also the energy needs. Overall, this will be a daunting task.

The surge of Covid-19 infections and fears of localised lockdowns may negatively impact the FY2022 securitisation volumes, originated by the NBFCs and the HFCs. Accordingly, ICRA expects the full year volumes to be around Rs. 1.0 ~ 1.1 lakh crore, marginally lower than its earlier estimates of about Rs. 1.2 lakh crore. Nonetheless, volumes could exceed FY2021 volumes by 15-20%. Due to the concerns around the Covid-related disruptions, preference for PTCs increased to ~45% share in Q3 volumes as the credit enhancements in such structures would be able to absorb higher-than-expected transaction-specific losses. Another visible trend is preference of investors for secured asset classes like mortgage loans and gold as their performance have been better during the post-Covid period.

Lastly, we examine the increase in bank’s overall standard restructured loan book due to incremental restructuring under Covid 2.0 - to 2.9% of standard advances as on September 30, 2021, compared to 2.0% as on June 30, 2021. Most of this restructuring includes borrowers impacted by Covid 1.0 and 2.0. The absence of an RBI moratorium on loan repayments, as announced during Covid 1.0, drove higher restructuring under Covid 2.0. Further, the spread of the new Omicron variant, and a probable third wave can impact banks’ asset quality, profitability and solvency. The third wave could also revive the demand for loan restructuring, including loans which were already restructured.

The issue concludes with the regular features: monthly rating updates, upcoming ICRA events, and news features related to the company.

I hope you will find this newsletter useful and interesting.

Best Regards

K. Ravichandran
Chief Ratings Officer, ICRA Ltd.

Sheetal Sharad

Vice President, Corporate Sector Ratings, ICRA

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Head – Research & Outreach, ICRA

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Aditi Nayar

Chief Economist, ICRA

Omicron poses downside risk to GDP growth

The National Statistical Office has pegged the year-on-year expansion in the GDP and gross value added (GVA; at constant 2011-12 prices) at basic prices a 9.2% and 8.6%, respectively, in the First Advance Estimates (FAE) for FY2022. However, these early estimates do not factor in the evolving impact of the restrictions triggered by Omicron on economic activity. The NSO expects the GDP to revert to a growth of 9.2% in FY2022 FAE from the contraction of 7.3% in FY2021, which is 20 bps higher than our forecast of 9.0%.

Rohit Ahuja

Head – Research & Outreach, ICRA

Assurances given at COP26 stands to benefit the country; the tasks need a focused roadmap and calls for timely Govt. interventions

The commitments on emission control made by India at the recent Glasgow COP26 summit are expected to benefit the country in the long-term with new technologies in energy efficiency, carbon reduction and green fuels etc. This is likely to attract investment in billions across sectors. ICRA has analysed India’s commitment in two phases – upto 2030, and the net zero target for 2070. Being a developing country, which is at an inflection point in terms of its energy consumption, the nation’s per capita energy consumption is expected to surge 3x-4x over the long term. Parallel to this, India has also committed to reduce green house gas (GHG) emissions by 1 bn MT by 2030. The country has additionally committed to a net zero carbon emission target by the year 2070, by when the per capita energy consumption would have surged multifolds from current levels.

Abhishek Dafria

Vice President & Group Head, ICRA

Securitisation volumes for FY2022 to be marginally lower than earlier estimates following the reoccurrence of fresh Covid infections

Securitisation volumes, originated largely by non-banking financial companies (NBFC)s and housing finance companies (HFC)s are likely to be negatively impacted for FY2022, following the surge in fresh Covid infections and likely threat of localised lockdowns. Accordingly, ICRA expects the full year volumes to be around Rs 1.0 ~ 1.1 lakh crore, marginally lower than its earlier estimates of about Rs 1.2 lakh crore. Nonetheless, for the year securitisation volumes would still be higher by about 15% to 20% over the volumes of Rs 87,000 crore reported in FY2021. For 9M FY2022, securitisation volumes stood at close to Rs 71,800 crore compared to ~Rs. 47,100 crores in 9M FY2021.

Anil Gupta

Vice President & Co-Group Head, Financial Sector Ratings, ICRA

Threat of third wave of Covid-19 poses risk to asset quality, especially the restructured loan book

With incremental restructuring under Covid 2.0, the overall standard restructured loan book for banks increased to 2.9% of standard advances as on September 30, 2021 (2.0% as on June 30, 2021). Most of this restructuring includes borrowers impacted by Covid 1.0 and 2.0. Restructuring under Covid 1.0 is estimated at 34% (or Rs. 1.0 trillion) of the total standard restructured loan book of Rs. 2.85 trillion for banks as on September 30, 2021, while restructuring under Covid 2.0 is estimated at 42% or Rs. 1.2 trillion. The balance comprised micro, small & medium enterprise (MSME) and other.

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