The Indian rating agency ICRA has said that the gross non-performing assets (NPA) level may increase to Rs 4.8-5.3 lakh crore or 6.2-6.8 per cent for the current fiscal 1015-16. The gross NPA level stood at Rs 4.5 lakh crore or 6 per cent at the close of 2015 calendar year.
In the report, ICRA’s Group Head (Financial Sector Ratings) Vibha Batra said as most banks are yet to fully recognise NPAs, it is likely that NPA addition will remain high in Q4 FY16 as well.
“While the second-half of FY16 should not be taken as the base for predicting the future performance of banks, significant NPA recognition in H2, FY16 could take up the gross NPAs to 6.2-6.8 per cent by March 31,” Batra added.
This, along with the relatively high level of other weak assets (9-10 per cent), could lead to higher credit costs over next two-three years, and the profitability of banks could remain low in 2016-17 fiscal as well.
According to ICRA, 70-80 per cent slippages in the third quarter were from standard assets, which points to inherent weakness in standard accounts. As a result, banks’ total stressed advances increased from 10.8 per cent in September 2015 to 11.6 per cent in December.
The report said that around 15-16 per cent of the total credit in the banking industry is weak, involving NPAs, restructured advances, or other exposures to entities, which are facing credit issues. This works out to Rs 11-12 lakh-crore, even as only Rs 4.2 lakh crore is recognised as NPAs.
“If economic activity picks up and some of the structural issues in credit intensive sectors are addressed, it is likely that banks’ gross NPAs percentage will not increase materially from these levels till March 2019,” the agency noted.
But in a stress scenario, that is if recoveries and upgrades drop from past levels and the structural problems are not addressed, gross NPAs percentage could increase to 7.5-8.5 per cent by March 2019, it added.
The report said PSBs losses in second-half are likely to be sizable in relation to Rs 25,000 crore infused by government as equity.
On an aggregated basis, PSBs reported net losses of Rs 11,400 crore in the third quarter; a similar trend is likely in the fourth quarter.
Private banks reported relatively stable profits in the third quarter with their aggregated PAT at Rs 11,300 crore against Rs 10,400 crore in Q2.