Money & Banking

Banks’ bad loans may increase to 5.9% in 2015-16: ICRA

Our Bureau Mumbai | Updated on January 24, 2018 Published on June 08, 2015

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ICRA Ratings has voiced concern over capital-constrained public sector banks and their capacity to absorb losses amid a rise in bad loans.

“What we are experiencing is a lag in recognition of asset quality stress. Around 25-30 per cent of restructured assets have already slipped into NPAs; now we are increasing our estimate of such slippage to 35-40 per cent from the earlier 30-35 per cent,” Vibha Batra, Senior V-P and Co-Head - Financial Sector Ratings, ICRA, said.

Based on data from 26 PSBs and 15 private banks, ICRA, an associate of Moody’s Investors Service, said it expected the lenders’ gross non-performing loans as a percentage of total loans to be between 5.3 per cent and 5.9 per cent in the fiscal year 2015-16, compared with 4.4 per cent as of March 2015.

In absolute numbers, gross bad loans could rise to ₹4.2-4.7 lakh crore by March 2016 from about ₹3.1 lakh crore a year earlier, ICRA said.

The resolution of structural issues in infrastructure, construction and iron and steel will have significant bearing on slippages. If structural issues in the infrastructure sector are not addressed, slippages from restructured advances could be higher at 40-45 per cent, the agency noted. New rules effective from April this year require banks to make 15 per cent provision for restructuring loans, treating those at par with bad loans. Earlier they were providing 5 per cent for restructured loans.

Stressed loans, including bad and restructured loans, could remain flat at ₹7.4 lakh crore or increase at a slower pace to about ₹8 lakh crore (as much as 10.5 per cent of total loans) in 2015-16, the rating agency said.

Total capital requirement for Indian banks in FY16 is at about ₹80,000 crore to ₹1 lakh crore. Public sector banks account for 80 per cent of the total capital requirement.

Published on June 08, 2015
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