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NPA of banks to go up, says Crisil

Credit rating agency Crisil said it believes the government’s stance to provide capital only to public sector banks to meet their performance thresholds – even as they reel under asset quality and profitability pressures – will force many to grow at a significantly slower pace. The agency said in the current fiscal, gross non-performing assets (NPAs) of Indian banks are seen edging up by 20 basis points (bps) to 4.5% of advances – or rise by Rs 600 billion to Rs 4 trillion. Weak assets are expected to stay high at 6% (Rs.5.3 trillion). “Worryingly, exposure of banks to vulnerable sectors is expected to remain high, just the way it was in 2014-15,” it added.

Crisil says bad loans are seen rising mainly because of withdrawal of regulatory forbearance on restructuring, and high slippages from restructured assets. As much as 40% of assets restructured between 2011-14 have degenerated to NPAs, it said. 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.

Given all this, banking-sector profitability will remain weak with return on assets (RoA) staying flat at 0.8% in the current fiscal. Private-sector banks will continue to outperform the industry with RoA of 1.6% compared with 0.5% for PSBs.

Crisil also said to meet Basel III regulations, banks needed to raise Rs.4.7 trillion till 31 March 31, of which Rs.1.0 trillion has been raised so far. The slowdown in growth of PSBs will have beneficial rub-off of reducing their capital requirement by Rs 300 billion. This will, however, be replaced by higher requirements by private banks given their faster pace of growth. In all, PSBs will now have to raise Rs 2.6 trillion and private banks Rs 1.1 trillion upto March 2019.

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