Public sector lenders' NPAs may shoot up again: Icra

The report also warned that PSBs' fresh NPA generation rate may remain at elevated levels in the short-term

The quantum of bad loans for the public sector banks may rise again in the first half of this financial year, rating agency Icra said in a report.

In the last financial, public sector banks had been facing huge pressure on profitability front due to rising bad loans. However, with increased efforts and quality control in the Jan-March quarter in the last financial year, banks had managed to slightly reign in the Non Performing Assets (NPAs).

In the fourth quarter of last financial year, gross NPA in%age terms of the private sector lenders declined by 30 basis points from the December 2013 levels. Icra believes that this reduction in bad loans is not sustainable.

"This reduction is due to higher recovery efforts towards the end of the financial year, higher write offs and sale of assets to asset reconstruction companies. None of these are likely to be sustained in Q1, FY2015, thus the gross NPA% could move back to December 2013 levels (~4.1%) in the first quarter itself. Restructured advances of the PSBs remain at elevated levels of 6.2% as on March 31, 2014," said Icra in a statement.

The gross NPAs of Public Sector banks (PSBs) had increased from 3.6% as on March 2013 to 4.4% as on March 2014. On the other hand the private sector lenders have managed to tame in the bad loans.

Private banks have managed were to reduce their gross NPAs to 1.8% as on March 2014 versus 1.9% as on December 2013.

However, there might be some respite on the credit growth front as after another year of sluggishness, credit growth may witness a slight uptick in this financial year, as per

"Overall credit growth may revive marginally at 14-15% in 2014-15; private sector banks may continue to outpace PSBs (public sector banks) in credit growth," Icra added in the note.

The agency also added that a boost in the treasury income will end up boosting the profitability of the public sector lenders.

"During the course of the last few months, G-sec yields have declined by 30-40 bps which along with a recent surge in equity markets could offer a marginally higher treasury income to banks in FY 2015 vis-a-vis FY2014. Thus marginal increase in profitability (up to 10 bps from the levels seen in FY2014) and around 13-15% expansion in the balance sheet may translate into 15-35% growth in net profits," Icra said adding that the impact in profit will be visible from second quarter.