Banks to get Rs 270-billion breather on RBI provisioning move: Crisil

The recent relaxation given to lenders by RBI in provisioning norms and permitting them to spread mark-to-market (MTM) losses over four quarter will provide a Rs 270-billion breather to banks in the fourth quarter of fiscal 2017-18, said a report.

The Reserve Bank of India (RBI) recently gave an extra quarter (till June 2018) to reach 50 per cent provisioning (40 per cent by March 2018) on accounts referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) framework.

It also permitted lenders to spread-out of marked-to- market (MTM) losses on investments incurred in the third and fourth quarters of fiscal 2018 across four quarters.

Rating agency Crisil in a report on Wednesday said banks profitability has come under intense pressure as provisioning requirements have been rising with ageing of non-performing assets (NPAs), withdrawal of various restructuring schemes prior to February 2018 causing an increase in NPAs, and a sharp rise in bond yields since September 2017 leading to significant MTM losses in their gilt investments.

"Accounting for the MTM losses over four quarters would mean nearly Rs 8,000 crore (80 billion) provisioning relief including write-backs for banks in the last quarter of fiscal 2018," its director Rama Patel said.

"Another relief worth Rs 19,000 crore (190 billion), in the form of lower provisioning or write-back, would also ensue because the RBI has permitted banks to achieve 50 per cent provisioning on accounts referred to NCLT by June 2018 instead of March as stipulated earlier," he added.

The report, however, said in fiscal 2018-19, operating profitability of banks should stabilise on the back of incremental credit growth and lower interest reversals after reduction in fresh slippages to NPAs but overall, bottomlines will remain under pressure because of high provisioning burden stemming from the large stock of NPAs.

According to Crisil, in the current fiscal, recoveries are expected from the resolution of few large accounts under the IBC, especially from the steel sector.

"That should provide some offset to the high provisioning requirements," it added.