Comments
As much as ₹5-lakh crore of bank loans deteriorated into the non-performing asset (NPA) category in fiscal 2018, according to credit rating agency Crisil.
But the tide seems to be turning, given the sharp reduction in SMA (special mention account)-2 cases and better NPA recovery prospects, it added. An SMA-2 account is a stressed account where the principal or interest payment or any other amount, wholly or partly, is overdue between 61 and 90 days.
Crisil said the total slippages in the past three fiscals amounted to ₹13.6-lakh crore.
It assessed that about a fifth of the slippages last fiscal (FY2018) was due to the withdrawal of various structuring schemes by the RBI in February 2018 after the Insolvency and Bankruptcy Code (IBC) process came into force.
As a result, gross NPAs increased to about ₹10.3-lakh crore, or about 11.2 per cent of advances, as on March 31, 2018, compared with ₹8-lakh crore, or about 9.5 per cent of advances, as on March 31, 2017.
Moderation in slippages
Underscoring that the tide is slowly turning, Crisil said it expects a moderation in slippages, better recoveries from NPAs, and improved provision coverage to bode well for banks.
For example, SMA-2 accounts have more than halved to 0.8 per cent of advances as of last fiscal-end, compared with 2 per cent a year earlier, indicating a considerable reduction in stressed loans that can regress into NPAs.
Crisil Senior Director Krishnan Sitaraman said: “Further, prospects of recovery from stressed accounts referred to the National Company Law Tribunal (NCLT) are improving. More than a quarter of the ₹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 improving prospects for the sector.”
Consequently, Crisil expects gross NPAs in the banking system to peak at around 11.5 per cent this fiscal and then start reducing.
Banking system losses
Last fiscal, the banking system reported a net loss of ₹40,000 crore because of the sharp rise in NPAs and the resulting increase in provisioning costs.
PSBs bore the brunt of this; their provisioning costs were nearly twice the pre-provisioning operating profits; this resulted in a net loss of about ₹85,000 crore.
Crisil Director Rama Patel said: “The banking system’s provisioning cover (excluding write-offs) for NPAs increased to 50 per cent as on March 31, 2018, against 45 per cent a year ago; this is expected to improve this fiscal.”
However, the agency assessed that higher provisioning and the resultant losses have eroded the ₹1.2-lakh crore of capital raised by PSBs last fiscal, of which ₹90,000 crore was from the government. PSBs depend 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, Crisil said the ₹2.1-lakh crore recapitalisation programme announced in October 2017 may be insufficient to meet the capital requirements of PSBs by this fiscal-end.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.