Bad loan provisioning at Rs 3.3 tn in FY18

Banks are likely to need nearly Rs 3.3 lakh crore this fiscal as provisioning for large NPA accounts in the current financial year, said a Crisil report. The report said with the economic value of assets underlying NPAs eroding with time, and resolutions are hard to come by, banks would need to step up on provisioning, mainly for large corporate NPAs. It will facilitate faster clean-up of their balance sheets. "Our estimates show that banks would need to set aside close to Rs 3.3 lakh crore this fiscal, or 50 per cent more than Rs 2.2 lakh crore they provided for NPAs last fiscal," Crisil said in the report released here Thursday.

The provisioning quantum was arrived at after an account-by-account analysis of the economic value of assets underlying large corporate NPAs. The potential writedowns could be in the 25-75 per cent range, the rating agency said. While some of the NPA accounts have been adequately provided for, the majority of them will require higher provisioning compared with current levels, based on the residual economic value of the assets, it said. "It could lead to a net loss of nearly Rs 60,000 crore for the banking sector this fiscal with public sector banks (PSBs) bearing the brunt of increase in provisions and the resultant impact on profitability because of their higher stock of NPAs," the report said.

Though the assessment assumes effective resolution of stressed assets this fiscal, any delay would extend the pain on profitability into the next fiscal too. It further said banks operating profitability is likely to stabilise by the end of this fiscal.

This could lead to a net loss of nearly Rs 60,000 crore for the banking sector this fiscal with public sector banks (PSBs) bearing the brunt of increase in bad loan provisions