The top five private sector banks in India are likely to see slippages double to 5% by the end of the current fiscal according to a report by India Ratings. It estimates that FY21 slippages could more than double from 2.3% to 5%. Most banks are parking excess liquidity in low yielding government bonds and that is hitting yields badly.

The top five private banks saw 18.8% growth in deposits in FY20, with limited avenues to deploy the same. The system is also flush with liquidity after the RBI infused Rs.170,000 crore into the system in the last six months. With average cost of funds at 5-6%, money is begin deployed in reverse repos at 3.35%, resulting in negative carry. The real test is expected after the EMI moratorium is withdrawn.