Total bad loans or gross non-performing assets (NPAs) of Indian banks will rise by ₹60,000 crore to ₹4 lakh crore in FY16, according to a Crisil Ratings report.

“Bad loans are seen rising mainly because of withdrawal of regulatory forbearance on restructuring, and high slippages from restructured assets...The gross NPAs are seen edging up by 20 basis points (bps) to 4.5 per cent of advances.

Vulnerable sectors “Weak assets (including slippages and restructuring) are expected to stay high at 6 per cent (₹5.3 lakh crore),” the report said, adding that the exposure of banks to vulnerable sectors is expected to remain high.

Pawan Agrawal, Chief Analytical Officer, Crisil Ratings, said, “Going forward, the latitude now afforded to flexibly structure project loans (under 5/25 scheme) will enable lower slippages from large exposures. However, it can partially mask asset-quality pressures as reported NPAs may not be a true reflection of the extent of stress in banks.”

PSB slowdown Crisil’s calculations show that about ₹80,000 crore of stressed loans could be structured under RBI’s 5/25 scheme during 2015-16.

Given all these, banking-sector profitability will remain weak.

Further, the slowdown in growth of PSBs will have a beneficial rub-off on reducing their capital requirement by ₹30,000 crore.

In all, PSBs will now have to raise ₹2.6 lakh crore and private banks ₹1.1 lakh crore, up to March 2019, Crisil said.

“Generation of capital won’t be easy for PSBs, given their muted profitability and difficulty in diluting the government’s stake because of poor valuations. Also, investor appetite for non-equity Tier I instruments is yet to be fully tested. Consequently, we expect PSBs to grow at half the pace of private banks for the next four years,” said Rajat Bahl, Director, Crisil Ratings.

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