The Kerala floods could materially affect the unsecured lending (microfinance institutions), SME businesses and the state’s agriculture output, resulting in higher loan slippages and insurance claims, says India Ratings and Research.
Many regional commercial banks would be affected due to their legacy state exposure towards SME and agriculture, where loan slippages could materially increase till borrowers’ cash flows normalise. “Large regional banks such as Federal Bank and South Indian Bank could witness an increase of 20-25 per cent in gross NPAs,” it said in a report.
While delinquencies would shoot up across segments in short term, actual haircuts may vary depending on asset classes. As the state gets back to normalcy, some segments could see a sharp spike in credit demand. “Gold financiers would particularly be impacted and could see higher auctioning post moratorium as borrowers largely depend on agricultural activities for servicing loans,” it said.