NPA provisions to push 10 PSBs into red in FY17: CRISIL

Dent in interest income due to new loan pricing regime, scheme to revive discoms may also shave off 10 bps from their net interest margin

A sharp rise in amounts to be set aside for stressed loans could force nine or 10 of the 26 public sector banks (PSBs) to report losses in the next financial year, says rating agency CRISIL.

Besides the provisioning, factors such as a dent in interest income, the new regime to price loans and the scheme to revive power distribution companies (discoms) might shave off 10 basis points from their net interest margin.

CRISIL said there could be some relief from a lower cost of deposits on account of their repricing for the rate cuts done this financial year.

On Thursday, the rating agency effected a major rating action — downgrades and change in outlook — on bonds of PSBs. They will continue to have asset quality problems in 2016-17, it said.

It downgraded ratings on the debt instruments of eight PSBs and revised the outlook on five others to ‘Negative’ from the earlier ‘Stable’. And, said the spike in provisioning would neutralise the profits of a number of PSBs – it would equal the pre-provisioning profit in both the current (FY16) and next financial years (FY17) for PSBs as a whole.  Close to seven per cent of the PSB loan book will cease to generate income between financial years 2015 and 2017 because of slippage to non-performing assets.

CRISIL said implementation of the new marginal cost lending rate regime would also impact yields.