Bad loans to rise to Rs 4-trillion for banks: Crisil

Asset quality woes of banks may turn worse for banks, with their gross non-performing assets (NPA) expected to rise by Rs 60,000 crore in the current fiscal to Rs 4 lakh crore, credit rating firm Crisil said today.
Crisil also said that private banks will grow at twice the pace of capital-hobbled PSBs in the next four years.
The government's stance to provide capital only to public-sector banks meeting their performance thresholds - even as they reel under asset quality and profitability pressures - will force many to grow at a significantly slower pace, it added.
"In the current fiscal, gross non-performing assets of Indian banks are seen edging up by 20 basis points to 4.5 per cent of advances - or rise by Rs 60,000 crore to Rs 4 trillion.

"Weak assets are expected to stay high at 6 per cent (Rs 5.3 trillion). Worryingly, exposure of banks to vulnerable sectors is expected to remain high, just the way it was in 2014-15," Crisil said in a report.
Bad loans are seen rising mainly because of withdrawal of regulatory forbearance on restructuring, and high slippages from restructured assets. As much as 40 per cent of assets restructured between 2011- 14 have degenerated to NPAs.

Even though restructuring has been discontinued, the newly introduced 5/25 scheme for infrastructure loans will act as a "mask" for the stress, it said, pointing to potential issues around transparency.

The scheme allows banks to refinance or sell long-term project loans after every five years. For banks to avail such a facility, the loan tenor cannot be more than 25 years.
"We believe that the asset quality challenges will persist in the current year," Crisil director Rajat Bahl told reporters on a conference call.
He said both the disappearance of the regulatory forbearance of restructuring as well as slippages from the previously recast loans will weigh-in on the asset quality.
Crisil expects Rs 80,000 crore of assets to get transfered under 5/25 scheme for infrastructure loans introduced last year to take care of the asset liability mismatches. A bulk of the asset quality woes in the recent past has been attributed to trouble with infra loans.

With the greater amount of provisioning that such stressed assets will require, the agency said the banks will also suffer on the profitability front.
It said private banks, which have a better leash on asset quality due to composition of assets, will overtake the state-run lenders on profits at an aggregate level.
Private sector banks with better loan books will be able to raise capital, which will be difficult for the state-run lenders, Crisil's chief analytical officer Pawan Agarwal said.
The better-capitalised PSBs will grow at the system average, but many will grow in single-digits.
The dip in credit growth will reduce the PSBs' capital requirement by Rs 30,000 crore to Rs 2.6 lakh crore till 2019, while the private lenders will have to raise Rs 1.1 lakh crore, Crisil said.