The brokerage also warned that merging small and weaker PSBs with larger ones to help tide over their capital issues will be counterproductive for the acquiring banks.
"We think provisioning on these loans is 30-40 per cent currently and could increase to around 60 per cent. This could imply 0.40-0.90 per cent increase in credit cost for the system," Morgan Stanley said in a note.
The note said based on media reports, these 12 accounts constitute for Rs 2-2.5 trillion or 2.5-3 per cent of system loans.
The brokerage particularly warned that the state-run banks, which hold 70 per cent market share, do not have the ability to take higher provisions and given government's tightness on funds, only the large ones could be able to access capital from the markets.
Also Read
The note comes a day after country's third largest private sector lender Axis Bank came out with data specifying that it had adequately provisioned for these 12 accounts, and three days after the largest lender SBI asserted that its profitability will not be hit by the additional provisioning.
According to reports, the RBI has asked banks to set aside as much as 50 per cent for these 12 accounts, which has raised concerns over bank profits.
The note said apart from the 12 identified accounts, some media reports are pointing out to a list of another 55 stressed accounts given by the RBI to the lenders for resolution.
The brokerage, however, welcomed the RBI action on provisioning, saying it will help clean up the books and also prepare better for migration to Ind-AS accounting which has to be adopted from next April.
Disclaimer: No Business Standard Journalist was involved in creation of this content