The days of continuously rising bad loans are over for the banks and they are set for revival with an improvement in their gross stressed assets, says rating agency Icra. Icra also said that NPAs are set to inch down to 5-5.5 per cent by March from its earlier projection of 5.3-5.9 per cent. "Considering the trend in refinancing\/restructuring done so far, we are revising our projected gross NPA percentage to 5-5.5 by March 2016," Icra senior VP Vibha Batra told after releasing a report on the bad loan scenario in the banking system. It sees total stressed advances (NPAs plus standard restructured) at 10.3-10.8 per cent by March compared to 10.7 per cent as of September 2015. During the first half of the fiscal, the pace of fresh NPA generation remained stable at 3.3 per cent, leading to a rise in gross NPA per cent from 4.4 per cent in the June quarter to 4.8 per cent in the three months to September, she said. As the case with asset quality, SBI Group fares much better on profitability as against nationalised banks. The report is based on 33 banks' earnings which the agency rates (24 state-run banks and nine private banks). Reported gross NPA may have been lower on account of implementation of strategic debt restructuring (SDR) in few accounts which allows banks to maintain existing asset classification of the account, as on the reference date for a period of 18 months from the reference date. Debt structured under SDR scheme estimated to be around 0.5 per cent of banking credit as of September. The report said the effective implementation of Uday scheme will improve the financial health of discoms and could reduce vulnerability of banks' exposure to power sector. The government has approved the Uday scheme earlier this month with an objective of financial turnaround of state-owned distribution companies. The scheme proposes to wipe out the incremental cash losses of discoms by FY19 while reducing the debt burden of discoms by proposing takeover of 75 per cent of the discoms' debt (used to fund losses) by the respective states. "If all states participate in the scheme discom revival scheme, PSBs' reported restructured advances could come down by 0.8-1 per cent from the levels of around 7.2 per cent as of September 2015," the report said. According to the report takeover of debt of SEBs by the states will translate into saving in interest costs of around Rs 46,000 crore for discoms, resulting in a relief in cost of supply of nearly Rs 0.50 per unit on all India basis by FY18. The report projects credit growth of 11.5-12.5 per cent for FY16 for banks' total credit portfolio in light of better visibility on capital infusion at PSBs. "Deposit growth in the foreseeable future will mainly be guided by level of economic activity, deposit rates offered by banks and the relative attractiveness of other asset classes," it said. Deposit could grow by 11.5-13 per cent in FY16. Banks' credit offtake dropped to a multi-year low of 8.8 per cent year-on-year in September 2015 versus 10.8 per cent as in September 2014. "Considering the credit mix of PSBs, risk aversion and change in leadership at some large banks, credit offtake for PSBs is likely to remain lower than that of private sector banks," it said. The report said PSBs need Rs 10,000-20,000 crore tier I capital in FY16 from external sources. "If they are unable to raise this, seven PSBs would need more equity from government, over and above the existing allocation, else will have to curtail credit growth," it said. It said base rate reduction by around 25 basis points towards the end of Q2 of FY16 or beginning Q3 FY16 may weigh on profitability in the short term.