Banks likely to take more loan write-offs due to weak recovery prospects

Banks are likely to take significantly more loan write-offs against the backdrop of rising provisions and weak recovery prospects. State-run banks account for a dominant share (around 90 per cent) of the impaired loan stock, and have cumulatively written off nearly $30 billion in bad loans over the past three years.
 
What is also to be borne in mind is that in the case of state-run banks, their average core equity ratio (CET-1) ratio (it was 10 per cent in 1HFY20) is 300 basis points lower than that of private banks. This implies that systemic stress would deal a significant setback to recovery.
 
Resolution delays coupled with rising provision cover on large legacy bad loans (nearing 90 per cent) could mean that loan write-offs will continue to be high, particularly for state-run banks. Write-offs were higher than recoveries and upgrades for nine out of 14 such banks reviewed in 1HFY20, while it was the reverse for private banks.