 "Banks' credit provisions to rise to Rs 2.4-2.6 lakh cr for FY18: Icra")
Banks credit provisions are likely to surge to Rs 2.4-2.6 trillion in fiscal 2018 compared to Rs 2 trillion last year due to provisioning for IBC accounts and ageing of NPAs, says a report.
The recent amendments to the Insolvency and Bankruptcy Code (IBC) will increase provisioning requirement for banks, according to a report by rating agency Icra.
It said increase in provisioning will result in higher losses for state-run banks during the year.
"With the total exposure of Rs 3 trillion of accounts likely to be resolved under IBC, the overall credit provisions are likely to be at Rs 2.4-2.6 trillion, including impact of ageing on existing NPAs and provisioning on IBC accounts for FY18 as against Rs 2 trillion during FY17," Icra's group head (financial sector ratings), Karthik Srinivasan, said in a webinar today.
Last week the President gave his assent to the ordinance amending the IBC which keeps out those promoters who have willfully defaulted on their debt obligations or are habitually non-compliant and, thus are likely to be a risk to successful resolution of the insolvent company.
Srinivasan said with the recent amendments in IBC, the likelihood of the higher losses and a further increase in credit provisions appears to be a possibility.
"A limited resolution seen in the second list of stressed borrowers may also force banks to refer to these borrowers under IBC, further adding to the provisioning requirements," he said.
He, however, said while debarring defaulting promoters may add to short-term pain for banks, it may discourage overleveraging by borrowers and is likely to be good for the overall credit culture in future.
The rise in credit provisions will result in losses before taxes of Rs 30,000-40,000 crore for public sector banks (PSBs) during the current fiscal.
Srinivasan said the asset quality pain is likely to continue in the near-term with nearly Rs 1.7 trillion of standard restructured advances.
The gross non-performing assets (GNPA) of Rs 8.8-9 trillion or 10-10.2 per cent to peak out by end of the fiscal as against GNPAs of Rs 7.65 trillion or 9.5 per cent as on March 31, 2017.
PSBs are positioned weakly on their capital ratios with seven PSBs (out of 21) and 12 PSBs below the regulatory minimum capital level required for March 2017 and March 2018 respectively.
With the challenges of meeting capital levels, the PSBs continue to refrain from growing advances, which is reflected in a year-on-year growth of less than 1 per cent in advances of PSBs even as the private sector banks continue to achieve a higher year-on-year growth of 17.2 per cent as on September 30, 2017.
The rating agency expects the scope of a further cut in deposit rates to be limited, even as the cost of deposits will continue to decline upon re-pricing of fixed deposits, which, coupled with competitive pressure, may drive a marginal cut in lending rates.
The recent amendments to the Insolvency and Bankruptcy Code (IBC) will increase provisioning requirement for banks, according to a report by rating agency Icra.
It said increase in provisioning will result in higher losses for state-run banks during the year.
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In the second quarter banks' credit provisions rose to Rs 64,500 crore during the second quarter of the current fiscal, up by 40 per cent on a sequential basis and 30 per cent on a y-o-y basis.
"With the total exposure of Rs 3 trillion of accounts likely to be resolved under IBC, the overall credit provisions are likely to be at Rs 2.4-2.6 trillion, including impact of ageing on existing NPAs and provisioning on IBC accounts for FY18 as against Rs 2 trillion during FY17," Icra's group head (financial sector ratings), Karthik Srinivasan, said in a webinar today.
Last week the President gave his assent to the ordinance amending the IBC which keeps out those promoters who have willfully defaulted on their debt obligations or are habitually non-compliant and, thus are likely to be a risk to successful resolution of the insolvent company.
Srinivasan said with the recent amendments in IBC, the likelihood of the higher losses and a further increase in credit provisions appears to be a possibility.
"A limited resolution seen in the second list of stressed borrowers may also force banks to refer to these borrowers under IBC, further adding to the provisioning requirements," he said.
He, however, said while debarring defaulting promoters may add to short-term pain for banks, it may discourage overleveraging by borrowers and is likely to be good for the overall credit culture in future.
The rise in credit provisions will result in losses before taxes of Rs 30,000-40,000 crore for public sector banks (PSBs) during the current fiscal.
Srinivasan said the asset quality pain is likely to continue in the near-term with nearly Rs 1.7 trillion of standard restructured advances.
The gross non-performing assets (GNPA) of Rs 8.8-9 trillion or 10-10.2 per cent to peak out by end of the fiscal as against GNPAs of Rs 7.65 trillion or 9.5 per cent as on March 31, 2017.
PSBs are positioned weakly on their capital ratios with seven PSBs (out of 21) and 12 PSBs below the regulatory minimum capital level required for March 2017 and March 2018 respectively.
With the challenges of meeting capital levels, the PSBs continue to refrain from growing advances, which is reflected in a year-on-year growth of less than 1 per cent in advances of PSBs even as the private sector banks continue to achieve a higher year-on-year growth of 17.2 per cent as on September 30, 2017.
The rating agency expects the scope of a further cut in deposit rates to be limited, even as the cost of deposits will continue to decline upon re-pricing of fixed deposits, which, coupled with competitive pressure, may drive a marginal cut in lending rates.