Mumbai: The banking sector is likely to end the current fiscal with increased gross non-performing assets (NPAs) at 5.3-5.9 percent, primarily due to the withdrawal of the regulatory forbearance on restructured advances by the Reserve Bank from this April, ratings agency Icra said Wednesday.
For the year ended March 2015, gross NPAs stood at 4.4 percent of the system, while in the quarter ended June 2015, the same rose to 4.7 percent.
"Reported gross NPA percentage will increase in this fiscal year with the withdrawal of the regulatory forbearance for restructured advances from April. Gross NPAs could increase to 5.3-5.9 percent by March 2016," Icra senior vice-president and co-head for financial sector ratings Vibha Batra said in a report on its banking sector outlook.
It said flexible structuring of weak assets may understate the reported weak assets.
The report analyses the performance of 26 public sector and 14 private sector banks.
However, another rating agency Care has pegged the NPA levels at a much lower rate.
"The overall NPAs are likely to increase by 20-30 basis points and are likely to be in the range of 4.6-4.7 percent," Care said in a report which covers 38 banks, including 26 public sector and 12 private sector banks.
Public sector banks' NPAs are likely to increase by 30-40 basis points and is likely to be in the range of 5.2-5.3 percent by March 2016, Care said.
Batra further said the flow of impaired assets (NPA generation plus fresh standard restructured) to moderate in FY16, on account of RBI relaxations (on restructuring of under construction projects and flexible structuring of operational projects), moderation in stress level of corporate sector, and improved operating environment.
The Icra report said state-run banks have a high 15 percent exposure towards power generation sector and iron & steel sector, while this is only 6 percent for private sector banks.
However, only 20 percent of state-run banks exposure to power generation and iron and steel is classified as stressed and private banks stressed assets in the sector is at 10 percent.
Banks' exposure to state discoms is at around Rs 1.5-1.7 trillion, Batra said.
The Icra report said refinancing under 5/25 scheme has the potential to overcome liquidity mismatches for viable projects. The scheme is also likely to ease liquidity stress in the construction sector.
On credit growth, Icra said the same dropped to multi year low of 8.5 percent in June 2015 on a year-on-year basis. The rating agency expects interest rate differences between capital market sources and bank loans to persist for some time and to have a negative impact credit growth.
Since last October on an average, banks lowered their one-year deposit rates by around 70 bps but cut the base rate by only 25-30 bps.
"Base rates are likely to decline by an additional 25-50 bps over the next one year as term deposits get re-priced," Batra said.
In the first quarter of last fiscal, state-run banks aggregated net profit declined 20 percent to Rs 9,700 crore while private banks saw their net profit rise 9 percent to Rs 9,700 crore.
"State-run banks' profitability was impacted due to poor credit growth and poor asset quality," it said.
The report said the Indradhanush, the government plan to revamp state-run lenders is a positive step, as it "will lead to a better decision and improvement in efficiency."
She said state-run lenders need Rs 10,000-15,000 crore tier I capital this year over and above the Rs 25,000 crore likely infusion by the government.
