Credit ratings agency, Crisil Ratings in its latest report has estimated the gross non-performing assets (NPAs) in the banking system to increase by 1 percentage point to 10.5% of advances as of March 2018, up from 9.5% as of March 2017. It said that about two-thirds of the overall stressed assets in the banking system has already been recognised by banks as NPAs as on March 31, 2017. It also estimates the total amount of stressed loans, which includes NPAs and standard assets that are under pressure currently and could deteriorate into NPAs, to be at Rs 11.5 trillion or 14% of the system and added that infrastructure, power, engineering, and construction sectors contribute bulk of the stressed assets.
Crisil Ratings has said that the assets under pressure mostly comprise not-yet-recognised bad loans (recognised as NPA in one bank, but not in others), restructured standard accounts, and stressed assets structured under the Reserve Bank of India resolution schemes such as SDR (strategic debt restructuring), 5:25 refinancing and S4A (Scheme for Sustainable Structuring of Stressed Assets). It also said that faster resolution of stressed accounts through the Insolvency and Bankruptcy Code and various structuring schemes, is critical to improving the asset quality of banks. The report, however, said over the medium-term, a big increase in stressed loans is unlikely on factors like higher commodity prices, lower interest rates, improved capital structure, and efficiency gains for corporates.
The rating agency further said that with the majority of stressed assets now recognised as NPAs, rest of the corporate loan portfolio of banks can be expected to perform better over the medium-term. It also said there will be asset quality deterioration in loans to small businesses and farmers, which are impacted due to introduction of the goods and services tax and demonetisation, and debt waivers, respectively. But it said this is unlikely to put pressure on bank balance-sheets the way large exposures are doing. The agency expects that fresh NPA creation will decelerate this fiscal, but the overall stock would continue to rise because slippages would still outpace recoveries.
