CHENNAI: The strained assets of Indian banking system are expected to peak at around 11.5 per cent in 2019 financial year, from 11.2 per cent in FY18, as Rs 5 lakh crore of bank loans have deteriorated into non-performing assets (NPAs), a report by rating agency CRISIL said.
“CRISIL expects gross NPAs in the banking system to peak at around 11.5 per cent this fiscal and then start reducing,” the agency said in a statement.
Further, CRISIL revealed that Rs 2.1 lakh crore recapitalisation programme announced by the Centre in October 2017 may be insufficient to meet the capital requirements of public sector banks that have been reeling under the burden of an accumulated gross NPA of Rs 10.3 lakh crore, higher provisioning and resultant losses worth Rs 40,000 crore.
State-run banks also remain highly dependent on the government for capital to meet Basel-III norms. “Given the higher-than-expected losses last fiscal, probable loss in the current fiscal, and recall of the additional tier-1 instruments by a few PSBs, the Rs 2.1 lakh crore recapitalisation programme announced in October 2017 may be insufficient to meet the capital requirements of PSBs by the end of this fiscal,” CRISIL said.
About a fifth of the slippages in FY18 were due to withdrawal of various structuring schemes by the Reserve Bank in February, after the Insolvency and Bankruptcy Code (IBC) process came into force.
“However, the tide is slowly turning and we expect moderation in slippages, better recoveries from NPAs and improved provision coverage to bode well for banks,” the agency said.
“The good part is banking system’s provisioning cover (excluding write-offs) for NPAs increased to 50 per cent as on March 31, 2018, compared to about 45 per cent a year ago. This is expected to improve further this fiscal,” said Rama Patel, Director, CRISIL Ratings.
Special Mention Account cases, where exposures are overdue by 60-90 days, have more than halved to about 0.8 per cent of advances as of the end of last fiscal, compared to about two per cent a year earlier, indicating considerable reduction in stressed loans that can potentially regress into NPAs, the report said.
“Further, prospects of recovery from stressed accounts referred to the National Company Law Tribunal are improving. More than a quarter of the Rs 3.3 lakh crore worth of cases referred to NCLT for resolution are from the steel sector, which has seen heightened bidding interest due to its improving prospects,” said Krishnan Sitaraman, senior director, CRISIL Ratings.