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As bad loans age, banks will have to factor in additional provisioning requirements, which will have implications on their profitability and capital, said RBI Deputy Governor SS Mundra.
“I am aware that it would be quiet a hazard to guess as to what kind of provisioning requirement will be needed in the coming years because again it is a very dynamic situation,” he said at the SBI Banking and Economics conclave.
Referring to the trend in recovery and upgradation vis-à-vis incremental slippages in the past few years, Mundra observed that it indicates that rather than release of provisions there may be requirement of some additional provisions. “So, unless and until recovery and upgradation overtakes the additional accumulation of bad loans, the provisioning requirement would be enhanced,” he said.
Of the total non-performing asset stock of the banking system as on 31 March 2016, around 36 per cent is in the sub-standard category, around 59 per cent in the doubtful category, and 5 per cent is categorised as loss.
“As the period progresses and there is a migration from sub-standard to doubtful to loss, it entails additional provisioning. So, this will be the additional provisioning requirement that we have to factor in,” explained Mundra.
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