 "Impaired assets flow to moderate in FY16: ICRA")
The flow of impaired loans would moderate in the current financial year on the back of improved operating environment and the moderation in companies’ stress level, rating agency ICRA said.
The impaired assets portfolio covers the gross non-performing assets (GNPAs) and restructured advances. The leeway given by the Reserve Bank of India on restructuring under-construction projects and flexible structuring of operational projects will also help reduce slippage, it said.
However, the reported GNPAs in percentage terms will increase in FY16 due to the withdrawal of regulatory forbearance for restructured advances. GNPAs could increase to 5.3-5.9 per cent by March 2016 against 4.4 per cent as of March 2015.
While giving a benign outlook on impaired loans, ICRA warned that the extent of stress in the system (reported weak assets) might be understated on account of flexible structuring of assets and changing dynamics of projects under construction. Lenders have restructured corporate advances worth Rs 4.5 lakh crore in the past three years (FY13-FY15). The resolution of structural issues in infrastructure, construction and iron & steel will have significant bearing on slippages.
Giving the example of sectors where stress could be masked, it said there is a long construction phase in case of infrastructure projects.
There could be change in dynamics during the long construction phase (three to five years). However, the account classification is merely based on ‘interest / principal servicing’ and that too is funded from debt / equity as there are no project cash flows, ICRA said.
The commercial operations date for large projects could be shifted by up to two-four years, without any change in classification. This increases the lag for risk recognition, it added.
The large projects (those above Rs 500 crore) are allowed to be refinanced or structured without any external benchmark on viability of the project. There is limited information about the projects getting restructured under the 5*25 scheme, ICRA added.
The impaired assets portfolio covers the gross non-performing assets (GNPAs) and restructured advances. The leeway given by the Reserve Bank of India on restructuring under-construction projects and flexible structuring of operational projects will also help reduce slippage, it said.
However, the reported GNPAs in percentage terms will increase in FY16 due to the withdrawal of regulatory forbearance for restructured advances. GNPAs could increase to 5.3-5.9 per cent by March 2016 against 4.4 per cent as of March 2015.
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Giving the example of sectors where stress could be masked, it said there is a long construction phase in case of infrastructure projects.
There could be change in dynamics during the long construction phase (three to five years). However, the account classification is merely based on ‘interest / principal servicing’ and that too is funded from debt / equity as there are no project cash flows, ICRA said.
The commercial operations date for large projects could be shifted by up to two-four years, without any change in classification. This increases the lag for risk recognition, it added.
The large projects (those above Rs 500 crore) are allowed to be refinanced or structured without any external benchmark on viability of the project. There is limited information about the projects getting restructured under the 5*25 scheme, ICRA added.