Banks likely to take more loan write-offs due to weak recovery prospects
Resolution delays coupled with rising provision cover on large legacy bad loans (nearing 90 per cent) could mean that loan write-offs will continue to be high, particularly for state-run banks
 "banks, loans, credit, private banks, public sector banks, PSU banks, loan write-off, npa, bad loans, Non performing assets, asset")
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Banks are likely to take significantly more loan write-offs against the backdrop of rising provisions and weak recovery prospects. State-run banks account for a dominant share (around 90 per cent) of the impaired loan stock, and have cumulatively written off nearly $30 billion in bad loans over the past three years.
What is also to be borne in mind is that in the case of state-run banks, their average core equity ratio (CET-1) ratio (it was 10 per cent in 1HFY20) is 300 basis points lower than that of private banks. This implies that systemic stress would deal a significant setback to recovery.
Resolution delays coupled with rising provision cover on large legacy bad loans (nearing 90 per cent) could mean that loan write-offs will continue to be high, particularly for state-run banks. Write-offs were higher than recoveries and upgrades for nine out of 14 such banks reviewed in 1HFY20, while it was the reverse for private banks.
What is also to be borne in mind is that in the case of state-run banks, their average core equity ratio (CET-1) ratio (it was 10 per cent in 1HFY20) is 300 basis points lower than that of private banks. This implies that systemic stress would deal a significant setback to recovery.
Resolution delays coupled with rising provision cover on large legacy bad loans (nearing 90 per cent) could mean that loan write-offs will continue to be high, particularly for state-run banks. Write-offs were higher than recoveries and upgrades for nine out of 14 such banks reviewed in 1HFY20, while it was the reverse for private banks.