Banks to see Rs 2L-cr dud loans in two years

Stressed loan pool of Rs 1.52 lakh crore of Indian banks may turn non-performing by September 2020, India Ratings and Research said on Tuesday.

The banks may have to provide an additional up to Rs 40,000 crore towards loans, which could potentially turn sour between October 2018 and September 2020, the rating agency said.

Within stressed corporate assets of Rs 13.5 lakh crore to Rs 14 lakh crore in banks, about Rs 3.5 lakh crore are unrecognized by lenders. This highlighted the fact that these loans are still being serviced by borrowers, and categorized as “standard” on banks’ books, it said.

The slippage from the unrecognised accounts may to lead to sharp jump in provisioning because most of these accounts are not large enough to attract accelerated provisioning, said Jindal Haria, associate director banking and financial institutes at India Ratings and Research.

He also said that since there will be considerable time for these accounts to turn into doubtful category, banks will have adequate time to make required provisioning.

Haria said that provisioning on the recognised pool of gross bad loans aggregating Rs 9.5 lakh crore was at an adequate level.

However, the future provisioning will be based on the ageing of bad loans. Of the Rs 13.5-14 lakh crore stressed corporate loans, banks have recognised only Rs 10 lakh crore as of September 2018, he added.

Banks have to increase provisioning if an account remains non-performing for a longer time. “The cap on credit costs shall be established by ageing and would be around 4.4 per cent, spread over FY19 and FY20. India Ratings “bottom-up assessment for loss given default on stressed corporates indicate a best case (floor) credit cost of 2 per cent”, the agency said.

However, total credit cost or provisioning will also be contingent on recoveries of large bad loans.

The rating agency said that the retail credit segment needs continuous monitoring in terms of asset quality, given the current slowdown in employment and sluggish wage growth.

India Ratings maintained a stable outlook on State Bank of India and Bank of Baroda, and reinstated the negative outlook on remaining public sector banks for the next financial year.

The agency said that midsize and smaller public sector banks have weak capitalisation, lower provision coverage, and a larger stock of unrecognised assets across non-corporate segments.