Nearly 70 large accounts with exposure worth Rs 3.8 trillion will require resolution under the Reserve Bank’s revised framework by September, warns a report. Accounts are mainly from the power, engineering, procurement, and construction and telecom sectors.
The report also said state-run banks are estimated to report pre-tax loss of Rs 419 billion to Rs 1.016 trillion in the current fiscal year, depending on the haircuts they may have to undertake on stressed assets undergoing resolution.
In 2017-18, public sector banks reported a loss before tax of Rs 1.30 trillion.
“We estimate an additional Rs 3.8 trillion of exposure across 70 large accounts to require resolution by September 1,” rating agency Icra’s head for financial sector ratings Anil Gupta said.
Of these, 34 accounts total 41,000 megawatt of power generation capacity with total debt of Rs 2 trillion. These accounts will require a resolution under the revised resolution framework. Of the Rs 3.8-trillion exposure, the agency estimates that nearly 92 per cent is already classified as non-performing assets by the lenders.
Gupta said with limited recovery witnessed in some of the earlier cases undergoing resolution except for accounts belonging to steel sector and high share of power sector exposure in 70 large accounts, a significant uncertainty prevails on the haircuts banks may need to take upon resolution.
In a scenario of 60-65 per cent provisioning requirements on accounts to be resolved and normal slippages of 3 per cent, the credit provisions for PSBs are estimated at Rs 1.4-2 trillion, which in addition to losses on bond portfolios will translate in overall losses for PSBs during 2018-19, he said.
The report said with the ongoing resolution of stressed assets, gross NPAs and net NPAs for banking sector are likely to come down to 10 per cent and 4.3 per cent, respectively, by March 2019, which otherwise could have been higher at 12.2 per cent and 5.6 per cent, respectively.