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Indian banks’ bad loans are expected to increase up to 5.7 per cent by March 2016 from 4.5 per cent in December 2014, says a report by credit rating agency ICRA.
The agency estimated bad loans to increase significantly in FY16 due to withdrawal of regulatory forbearance for restructured advances from April 1, 2015.
“In ICRA’s estimates, banks’ gross NPAs (non-performing assets) could rise to 5.1 - 5.7 per cent by March 2016.
“However, total stressed advances (Gross NPAs plus standard restructured advances) could moderate in FY2016 with economic activity picking up and the RBI’s norms for flexible structuring of loans to operational projects reducing the flow of impaired assets,” the report said.
In the reporting October-December quarter, while recoveries/upgrades dropped considerably at about 14 per cent (from 40 per cent in Q1FY15), the NPA generation rate was largely unchanged at 3.3 per cent for public sector banks (3.7 per cent for nationalised banks and 2.4 per cent for SBI). Slippages from restructured accounts, fresh flow into restructured accounts in the January-March 2015 period and recoveries from NPAs would determine the asset quality in future.
“The restructured assets slipping to NPAs annually are expected to continue at 12-15 per cent…While fresh NPA generation next year will be around 3.5 – 4.5 per cent,” said Vibha Batra, Senior VP, Group head Financial Sector Ratings, ICRA.
Batra added that the restructured assets in the January-March period could be in the range of ₹40,000-50,000 crore for the banking sector.
CapitalisationPublic sector banks’ (PSBs) current capitalisation levels are comfortable against the regulatory minimum as of now. However, overall for banks, the capital requirement for FY16 is estimated at ₹1 lakh crore. Of the total projected amount, PSBs could raise 80 per cent and private banks the other 20 per cent.
According to the agency, public sector banks’ profit after tax could increase by 12-18 per cent in FY15 as compared with FY14 on the back of some treasury gains expected in Q4 following further moderation of G-sec yields. These banks could see marginal improvement in net interest margins (NIM) till they cut base rates.
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