CS sees NPAs rising on stress in telecom, SMEs

Credit Suisse expects gross non-performing assets in the banking system to increase on the back of residual stress across companies, mainly in the telecom sector, and small and medium enterprises.

From the telecom sector, the stress is mainly seen emanating from banks' exposure to Vodafone Idea, which is likely to face deterioration in financial risk profile due to payment for adjusted gross revenue-related dues, according to analysts. In a report dated Feb 17, Credit Suisse said that exposure for some banks to Vodafone Idea is higher at 12% of their total loans.

In the case of small and medium enterprises, the report said with the Reserve Bank of India extending forbearance till December, slippages are likely to be "pushed out."

"...banks have restructured 1-5% of their SME loans (up to 1% of overall loans) using the forbearance, resulting in reported NPAs being relatively stable, though elevated at 1025% of loans for the public sector banks," it said.

As on Dec 31, 9.1 trln rupees or 9.2% of 93.6 trln rupees of loans in the banking system are categorised as gross non-performing assets, the report said. Credit Suisse expects this to rise after seeing a fall in Oct-Dec.

In the fiscal third quarter, slippages rose as both corporate slippage such as Dewan Housing as well as noncorporate, SME and agriculture segment, saw an increase.

However, the rise in slippages was partly offset by strong recoveries from accounts referred for insolvency proceedings such as Essar Steel and Ruchi Soya. This along with continued write-offs, led to a fall in reported gross non-performing assets, it said.