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Banks' asset quality to improve after FY18: Icra

PSBs are expected to report relatively healthy return on equity at 10-12 per cent for FY18

Anup Roy  |  Mumbai 

Govt infusion in banks still short, say Icra & Fitch

Rating agency expects Indian banks’ asset quality woes to peak by FY18 and that resolution process that has started already would eventually bring down the pain.

The rating agency expects the gross non-performing assets (NPAs) of the banking system to reach about Rs 9 lakh crore, or 10.2 per cent of the total loans, against Rs 7.65 lakh crore, or 9.5 per cent as of March 2017.

The failure of the strategic debt restructuring (SDR) mechanism by is partly responsible for the recent pile-up of fresh slippages.

“Therefore, the asset quality pressures are also expected to arise from the advances undergoing resolution under various schemes of resolution on stressed assets — especially the and the weakness seen in some large corporate accounts, apart from the increasing demand for waiver of farm loans,” said in its webinar on outlook for Indian  

Though FY18 may continue to pose asset quality pain for banks, it may also turn out to be a decisive year for resolution of the stressed assets, as the Reserve Bank of India (RBI) has stepped up the resolution process, said Karthik Srinivasan, group head, financial sector ratings at

“The RBI’s directive to to initiate proceedings against 12 large borrowers under the will break the status quo situation and force the stakeholders to arrive at a resolution plan,” Srinivasan said. Fresh slippages could be at three to four per cent of advances in FY18, while provisions required for old NPAs that deteriorated further, and relatively lower treasury gains, could result into another year of losses or low single-digit return on equity for (PSBs). 

However, PSBs are expected to report relatively healthy return on equity at 10-12 per cent for FY18.

PSBs’ additional capital need would be at around Rs 90,000 crore to Rs 1 lakh crore in two years to March 2019 as core equity of these continue to worsen at a time when the minimum regulatory capital requirement is on the rise.

First Published: Fri, June 23 2017. 00:55 IST