The Chennai floods could put loans worth close to Rs 1-lakh crore, advanced to small businesses and the priority sector in Tamil Nadu, at risk.

However, the bad loans are expected to show up only in the next fiscal as relaxations in repayment will obscure the stress for the initial period.

According to a research report by Kotak Institutional Securities, post natural calamities, loans in affected states show an immediate rise, helping banks show a healthier balance sheet.

But it is only two years down the line, when concessions on repayment run out, that bad loans start rising, the study said.

This has been the experience in Uttarakhand and in Jammu & Kashmir and might prove to be a pointer for banks that have large exposure in Chennai, it said.

According to the report, of the total bank loans of Rs 6.5lakh crore disbursed in Tamil Nadu, public sector banks have 67% market share compared to 28% for private banks.

Among all the affected areas in the state, Chennai alone contributes close to half of the loans and deposits. The report says that a size-able portion of this is loans to corporate, such as auto and auto ancillaries, which is not at risk. “The portfolio at risk is around 35% of loans, for example, which is primarily in the priority sector,” the report said.

Source: Economic Times