Not unexpectedly, higher provisions made by banks—especially state-owned lenders—impacted their bottom lines severely in FY16. Much of the damage occurred in the second half of the year after a stringent review of asset quality by the Reserve Bank of India. The central bank directed lenders to provide for any exposure in a uniform manner and set aside capital for ‘emerging stress’. In other words, if one lender classified a particular account as a non-performing asset, other banks in the consortium should also treat it as an NPA. While the central bank did exclude some assets from the list of exposures, that could be considered ‘emerging stress’, the level of provisioning stayed high. Since most banks claim they have recognised most of the stress on their books, analysts expect loan loss provisions to start moderating from the current year; for instance, at Bank of Baroda, loan loss provisions as a share of average loans is estimated to fall from 3.7% in FY16 to 1.8% in FY17. However, with the economy yet to recover meaningfully and several sectors reeling from the effects of over-capacity and falling prices, it’s possible there could be further slippages and sub-standard assets slip into the doubtful category. Consequently, although they have pencilled in lower provisions for the current year, analysts aren’t willing to upgrade earnings estimates significantly just yet. Moreover, they remained concerned about the dozen or so accounts where banks have initiated a strategic debt restructuring (SDR) scheme because if banks are unable to find buyers for these companies, the exposures, currently categoried as standard assets, will need to be classified as non-performing.