Asset quality pressures continue to haunt public sector banks despite the improved sentiments in the market after measures are addressed to revive the economy due to policy paralysis, as per rating agency ICRA.
The rate of generation of fresh non-performing assets (NPAs) remained elevated for Public sector banks (3.5%), and as result, their gross NPAs increased by 20 basis points (bps) to 4.6% in Q1, FY2015; the NPAs of private banks also increased by 20 bps to 2.0% for the same quarter, ICRA said in a report.
ICRA analysed the performance of 26 PSBs and 15 private banks for the quarter ended June 30, 2014.
“Going forward, ICRA expects PSBs’ gross NPAs to be at 4.4-4.7% as on March 31, 2015, as against 4.4% as on March 31, 2014 and 4.6% as on June 30, 2014. Overall, the Gross NPAs of the banking sector (PSBs + private banks) could be at 4-4.2% as in March 2015, as against 3.9% as in March 2014 and 4.0% as in June 2014,” the report said.
However, ICRA highlighted that there was a significant drop in fresh referrals to the CDR (corporate debt restructuring) Cell for restructuring during Q1, FY2015. If the current trend were to continue, one may expect some containment of the standard restructured book.
Overall, the Gross NPA percentage plus 30% of standard restructured advances remains large at 5.5-5.7% (around Rs. 3.5-3.7 lakh crore as of June 2014) and may continue to impact profitability over the short term. Moreover, new investment norms for asset reconstruction companies too could add to the NPA pile up.
Going forward, in addition to economic activity, management of one large steel exposure (estimated at 0.6% of banking credit), the Supreme Court’s decision on coal blocks, and deleveraging efforts by large corporate groups, among other factors, could shape the asset quality profile of banks.