Banks may have to set aside Rs3.3 tn as pro­vi­sions this fis­cal, says Crisil


Banks may need to set aside as much as Rs3.3 tril­lion in pro­vi­sions this fis­cal year to cover for large cor­po­rate loans turned bad, a move which could lead to huge losses, said a re­port from Crisil Rat­ings.

Banks had set aside Rs2.2 tril­lion as pro­vi­sions the pre­vi­ous fis­cal year.

“With the eco­nomic value of as­sets un­der­ly­ing NPAS (non­per­form­ing as­sets) erod­ing with time—res­o­lu­tions are hard to come by—banks would do well to bite the bul­let and step up on pro­vi­sion­ing, mainly for large cor­po­rate NPAS, and thus fa­cil­i­tate faster clean-up of their bal­ance sheets,” the rat­ing agency said in a note Thurs­day.

In­dian banks’ stressed as­sets have bal­looned to Rs10 tril­lion. Crisil said that it ar­rived at the Rs3.3 tril­lion num­ber af­ter an ac­count-by-ac­count anal­y­sis of the eco­nomic value of as­sets un­der­ly­ing large cor­po­rate bad loans.

Crisil’s com­men­tary comes at a time when banks have re­ferred 12 large ac­counts to the Na­tional Com­pany Law Tri­bunal (NCLT) for pro­ceed­ings un­der the In­sol­vency and Bankruptcy Code (IBC) fol­low­ing the Re­serve Bank of In­dia’s di­rec­tion.

Ac­cord­ing to the anal­y­sis, po­ten­tial write-downs that banks will have to un­der­take range from 25% to 75% of out­stand­ing dues. Crisil added that while banks made ad­e­quate pro­vi­sions against some NPA ac­counts, a ma­jor­ity of them will re­quire higher pro­vi­sion­ing com­pared with cur­rent lev­els.

“Crisil es­ti­mates this could lead to a net loss of (around) Rs60,000 crore for the bank­ing sec­tor this fis­cal with pub­lic sec­tor banks bear­ing the brunt of in­crease in pro­vi­sions and the re­sul­tant im­pact on prof­itabil­ity be­cause of their higher stock of NPAS,” the rat­ing agency said.

Ac­cord­ing to Vy­di­anathan Ra­maswamy, as­so­ci­ate di­rec­tor, rat­ings, Crisil, the abil­ity of pub­lic sec­tor banks to step up on pro­vi­sion­ing and has­ten clean-up of bal­ance sheets would de­pend on their cap­i­tal strength to ab­sorb losses.

“While larger pub­lic sec­tor banks are bet­ter placed on this count, most of the medium and small ones will re­quire rel­a­tively higher cap­i­tal sup­port from the govern­ment to off­set such losses and also meet the cap­i­tal re­quire­ments un­der Basel III reg­u­la­tions,” Ra­maswamy said.

The rat­ing agency also said that the op­er­at­ing prof­itabil­ity, cal­cu­lated be­fore mak­ing loan and tax pro­vi­sions, of banks is ex­pected to sta­bi­lize by March-end, mainly driven by im­prove­ment in net in­ter­est in­come.


Crisil’s com­men­tary comes at a time when banks have re­ferred 12 large ac­counts to the NCLT for bankruptcy pro­ceed­ings fol­low­ing the Re­serve Bank of In­dia’s di­rec­tion.

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