Impaired assets to peak by FY20: India Ratings

Impaired assets to peak by FY20: India Ratings

Impaired assets are expected to peak in FY'20 to 12.7% of advances, according to ratings firm India Ratings. Cash flow problem with respect to some good borrowers also add to the risk. Moreover, public sector banks will have to raise an addition Rs 2 lakh crore if credit picks up, it said.

Impaired assets may peak at 12.7% by FY19-FY20, while credit costs will recover gradually. It is expected to come down to 178bps by FY'19 from 253bps in FY'17. This will be due to aging of a large stock of non-performing assets (NPAs) added over the last four quarters estimated at Rs 4.2 lakh crore in FY'17, said India Ratings in a report

The profit oss account for most public sector banks would also be under pressure on account of the accelerated provisioning requirement on those accounts identified by the regulator for reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code in FY18

The India Ratings analysis also s links the asset quality of the top 200 non-financial stressed corporate borrowers excluding public sector undertakings to the cash flow risk. It said that lenders are likely to be comfortable with corporates with better asset quality. But some entities may be generating insufficient cash flows to service debt.

If significant funds are blocked in assets with low return, the time to recovery by lenders from such corporates could be significantly long. Hence, this would prolong non-performing assets resolution and accentuate haircuts for a sustainable debt resolution, leading to a further pressure on weak balance sheets.

The ratings firm estimated that public sector banks would need an additional capital of Rs 2.06 lakh crore to support a credit growth of 8 to 9 %. This would be in addition to the recent proposed capital support by the government.
The Economic Times, New Delhi, 09th February 2018

Impaired assets are expected to peak in FY'20 to 12.7% of advances, according to ratings firm India Ratings. Cash flow problem with respect to some good borrowers also add to the risk. Moreover, public sector banks will have to raise an addition Rs 2 lakh crore if credit picks up, it said.

Impaired assets may peak at 12.7% by FY19-FY20, while credit costs will recover gradually. It is expected to come down to 178bps by FY'19 from 253bps in FY'17. This will be due to aging of a large stock of non-performing assets (NPAs) added over the last four quarters estimated at Rs 4.2 lakh crore in FY'17, said India Ratings in a report.

The profit oss account for most public sector banks would also be under pressure on account of the accelerated provisioning requirement on those accounts identified by the regulator for reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code in FY18.

The India Ratings analysis also s links the asset quality of the top 200 non-financial stressed corporate borrowers excluding public sector undertakings to the cash flow risk. It said that lenders are likely to be comfortable with corporates with better asset quality. But some entities may be generating insufficient cash flows to service debt.

If significant funds are blocked in assets with low return, the time to recovery by lenders from such corporates could be significantly long. Hence, this would prolong non-performing assets resolution and accentuate haircuts for a sustainable debt resolution, leading to a further pressure on weak balance sheets.

The ratings firm estimated that public sector banks would need an additional capital of Rs 2.06 lakh crore to support a credit growth of 8 to 9 %. This would be in addition to the recent proposed capital support by the government

The Economic Times, New Delhi, 09th February 2018