Banks' weak assets shrink in 2003-04: Crisil

Weak assets of schedule commercial banks have declined over a year (fiscal 2003-04), according to credit rating agency Crisil.

Despite a 10 per cent growth in the assets base of banks the weak assets constitutes about 7.8 per cent of the total assets of the banking sector against 8.8 per cent in the earlier year, said the rating agency.

Crisil, director, financial sector ratings, D Thyagarajan, said in the medium term this is likely to decline further because of the turnaround expected in the manufacturing sector, a more conducive policy and regulatory environment for recovery of distressed assets and the increasing proportion of retail assets in banking portfolio.

Debt recovery tribunals, established to help speed up the NPA resolution process, have done a good job, their overall impact on recoveries is limited given the huge backlog of pending cases.

According to the Crisil study, only about 31 per cent of the banking sector's non-performing loans (NPL) are actionable under the Securitisation Act 2002.

Crisil estimates that the recovery rate for such loans will be around 40 per cent, that is, in the same range as that in comparable Asian countries such as Malaysia, Thailand, Korea and Indonesia.

Scheduled commercials are comfortably capitalised in spite of the significant proportion of weak assets in their portfolio's, says Crisil.

This is largely on account of large unrealised appreciation in their statutory liquidity portfolio in comparison to the additional capital requirement for meeting losses from weak assets in the portfolio.

According to the rating agency, the shortfall in capital of the banking sector after factoring in the loss owing to weak assets will be around Rs 30,900 crore.