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New CDR provision to push NPAs steeply to 5.7% in FY16: Icra

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Mumbai: With the regulatory forbearance on restructured assets coming to an end from April, bad loans of banks may increase sharply to 5.7 per cent next fiscal, a report has warned. “Withdrawal of the regulatory forbearance on restructured advances may lead to a sharp increase in banks’ gross NPAs to 5.1 to 5.7 per cent by March 2016 from 4.5 per cent as of December 2014,” domestic rating agency Icra’s senior vice-president Vibha Batra said in a report today.

State-run banks’ gross NPAs crossed 5 per cent mark by the December 2014 quarter, owing to sharp drop in recoveries which stood at 14 per cent in the third quarter of FY15 from 25-40 per cent in the previous two quarters. Recoveries of PSBs were impacted by a difficult operating environment as well as the RBI’s August 5, 2014 regulation tightening the norms for sale of NPAs to asset reconstruction companies.

Private sector banks’ gross NPAs and restructured advances stood at 2.1 per cent and 2 per cent respectively, as of Q3, largely unchanged from the September levels. While recoveries/upgrades dropped considerably in Q3, the NPA generation rate was largely unchanged at 3.3 per cent for PSBs at 3.7 per cent for all the nationalised banks and at 2.4 per cent for the market leader SBI.


PSBs’ fresh NPA generation was impacted by higher slippages from restructured accounts, which stood around 25 per cent of new NPAs generated during Q3, the report said. The report said while the pace of referrals to the corporate debt restructuring (CDR) cell have moderated considerably over the last few quarters, restructuring outside the CDR cell remains still high.

“Slippages from restructured accounts, fresh flow into restructured accounts in Q4 and recoveries from NPAs would determine the asset quality indicators in future,” she said. Overall, banks’ fresh NPA generation during the nine months of this fiscal at around 3 per cent was lower than 3.3 per cent in the year ago period, but higher than the levels in FY12 and FY13 at 2.5 and 2.7 per cent respectively.

However, flows to restructured advances were relatively high in Q3 and may increase further in Q4 since it being the last quarter for restructuring with regulatory forbearance benefit, she said.