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Asset quality woes of the banking sector are likely to continue this fiscal (FY18) even as fresh non-performing asset (NPA) generation rate continues to show signs of moderation, said credit rating agency ICRA in a report. The agency sees advances under strategic debt restructuring (SDR) to remain a risk to the asset quality in FY18.
ICRA has projected gross non-performing assets (GNPAs) to increase to ₹7.5-7.7 lakh crore (9.7-10 per cent) by end of FY17 and ₹8.2-8.5 lakh crore (9.9-10.3 per cent) by the end of FY18 with upside risks in case slower resolution of SDR accounts leads to higher slippages.
The annualised fresh NPA generation, according to the agency, declined to 4.1 per cent during the third quarter (Q3) of FY17 from 5.8 per cent in Q2 FY17, and 6.1 per cent in Q1 FY17.
According to Karthik Srinivasan, Senior Vice-President and Group Head–Financial Sector Ratings, “While the declining fresh NPA generation may reflect the easing asset quality pressures, the large quantum of fresh slippages outside the standard restructured advances also reflects the asset quality pressure outside the restructured book.”
In ICRA’s sample set, 61 large borrowers having a total debt of ₹2.45 lakh crore are currently undergoing resolution through the SDR scheme.
ICRA expects weakening cost-to-income ratios for PSBs and elevated credit costs to result in weak net profitability in FY18.
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