The percentage of gross non-performing assets (GNPAs) for the banking sector is expected to worsen from 3.9 percent of advances in fiscal 2013-14 to about 4-4.2 percent in 2014-15, Moody's analyst ICRA said in a report.
"Overall, the Gross NPAs of the banking sector (public sector banks (PSBs) + private banks) could be at 4-4.2 percent as in March 2015, as against 3.9 percent as in March 2014 and 4.0 percent as in June 2014," the report said, analyzing the performance of the 26 state-run and 15 private banks for the first quarter ended-June.
Asset quality pressures continued to take a toll of banks' performance during the first quarter.
"The rate of generation of fresh non-performing assets (NPAs) too remained elevated for PSBs (3.5 percent) and, as a result, their gross NPAs increased by 20 basis points (bps) to 4.6 percent in Q1," ICRA said.
The NPAs of private banks also increased by 20 basis points to 2.0 percent in the quarter, it added
However, there was a significant drop in fresh referrals to the corporate debt restructuring cell, according to ICRA.
"If the current trend were to continue, one may expect some containment of the standard restructured book," it said.
ICRA described the gross NPA percentage plus 30 percent of standard restructured advances as remaining large at 5.5-5.7 percent (around Rs.3.5-3.7 trillion as of June 2014) and said this may continue to impact profitability over the short term.
"Going forward, in addition to economic activity, management on large steel exposure (0.6 percent of banking credit), the Supreme Court's decision on coal blocks, and deleveraging efforts by large corporate groups, among other factors, could shape the asset quality profile of banks," the report said.
The prolonged and steep economic downturn, accompanied by high interest rates, has led to a sharp deterioration in asset quality for the banking sector and increased the pressure of NPAs.
Bad and restructured loans crossed 10 percent of all loans in mid-fiscal 2013-14 and are expected to touch the 15 percent mark by the end of the financial year 2014-15.
During the April-December period last year, the banks had recovered Rs.18,933 crore, which is only about 20 percent of the total non-performing assets of about Rs.192,000 crore in the banking system.
