Domestic rating agency Icra today said gross NPAs in the system may jump up to 5.9 per cent this fiscal from 4.4 per cent despite economic growth because of lagged recognition of bad assets which is resulting in slippage of more restructured accounts into dud loans.
“Reported gross NPAs will increase in FY16 with withdrawal of regulatory forbearance for restructured advances from FY16 to 5.3-5.9 per cent by March 2016 as against 4.4 per cent as in March 2015,” the agency said in a note.
The rising NPA estimate for FY16 is primarily driven by a greater proportion of assets restructured in the past slipping into NPAs again, Icra’s senior vice-president Vibha Batra told reporters in a conference call.
“What we are experiencing is a lag in recognition of asset quality stress. Around 25-30 per cent of restructured assets have already slipped into NPAs, now we are increasing our estimate of such slippage to 35-40 per cent from the earlier 30-35 per cent,” she said.
The system of asset recasts has been discontinued by RBI, starting April 1, but banks continue to carry loans restructured in the past.
Icra also feels that the profitability in the banking sector, especially state-run banks, will be under pressure if they are forced to pass the rate cuts by RBI to their lending rates by the government.
The state-run banks carry more long tenor deposits compared to their private sector peers and it takes longer, as long as up to 18 months, for the cost of funds to be repriced, she said, warning such pressure may be detrimental to profits.
The asset quality woes coupled with the low credit growth, which can be partly blamed on the government’s shift to supporting only well-performing banks, will put the margins under more pressure, she said, without giving a level.