Adding to the concern over the high amount of non-performing assets (NPAs) in the banking sector, which stood at about Rs 9.64 lakh crore as of 31 December 2016, rating agency India Ratings & Research has said that Loans worth Rs 260 crore given to corporate and SME, which constitute 3.2% of the total loans given by banks, may potentially be recognised as stressed loans by the Financial Year 2019.
“Out of the total unrecognised stressed book that banks are sitting on, around 1.8% is to stressed public sector units, around 2% of it either enjoys some group support and could flow to joint lender forum or would be subject to asset sale, around 2.9% could be the addition to the restructured book from infrastructure projects and 3.2% is the potential slippage in next 12-18 months,” India Ratings said in a report.
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Currently, the recognised stressed credit exposure to corporate and Small and Medium Enterprises (SME) is around 12% of the total bank credit and while a sizeable proportion of the unrecognised stressed exposure has strong group linkage or some form of parental support, potentially half of it could further slip in the next 12-18 months, the report reveals.
Estimates that impaired bank assets will peak at 12.5%-13% by FY18/FY19 were made in an earlier India Ratings report as well. However, credit costs will show an extended recovery period, as a large proportion of recently acquired higher–bucket non-performing loans keep aging, will keep the return on assets (RoA) for public sector banks and private sector banks at around 20 basis points below their respective long-term medians.
The report adds that Indian banks are sitting on unrecognised stressed loans of Rs 770 crore. The sectors which have some of the highest unrecognised stressed exposures include infrastructure, power, telecom and real estate among a few others.
Incidentally, provisioning in the Iron and Steel sector, which saw a lot of stress recognition in the Asset Quality Review exercise conducted by the Reserve Bank of India in the last financial year, still continues to remain inadequate considering higher loss given default estimates, the report said.