Banking system's NPAs to inch up in FY15: Icra

For the whole banking sector also the gross NPA is expected to increase to 4-4.2% at the end of this financial year

Despite lenders claiming bad loans are under check, the asset quality of banks continues to worsen. Rating agency Icra estimates public sector banks’ gross non-performing assets (NPAs) to stand at up to 4.7 per cent at the end of this financial year, compared with 4.4 per cent at the end of FY14.

For the entire banking sector, gross NPAs are expected to stand at 4-4.2 per cent, against 3.9 per cent at the end of March this year and four per cent at the end of June.

“The rate of generation of fresh NPAs remained elevated for public sector banks (3.5 per cent) and, as result, their gross NPAs increased by 20 basis points to 4.6 per cent in the first quarter of FY15. During the same quarter, the NPAs of private banks increased by 20 basis points to two per cent,” Icra said.

The agency expects the sale of bad loans to asset reconstruction companies to decrease; this might further increase the NPAs in the banking system. Had it not been for the sale of NPAs to asset reconstruction companies, the banking system’s gross NPAs would have been 20-30 basis points higher, Icra said.

As the Reserve Bank of India has mandated asset reconstruction companies to invest and hold 15 per cent in security receipts, against five per cent earlier, the sale of NPAs to these companies might decrease.

During the quarter ended June this year, there was a significant fall in fresh referrals to the corporate debt restructuring cell. Icra said at the end of the June quarter, the standard restructured book continued to be relatively large---about six per cent for public sector banks and five per cent for the entire banking system.