Mumbai : Elevated provisioning for stressed loans may keep most public sector banks in the red in the current financial year and may also prompt the government to announce capital infusion within the next two months, according to rating agency Icra.
With the August 27 deadline to resolve loans with aggregate exposure of Rs 2,000 crore now expired, many of the 70-odd large accounts with total dues of around Rs 3.8 lakh crore are likely to be referred to the National Company Law Tribunal (NCLT) for proceedings under Insolvency and Bankruptcy Code, as per the Feb 12 circular of the Reserve Bank of India.
With this, around 60 per cent of the non-performing loans are now under active resolution—40 large accounts with dues of over Rs 4 lakh crore have already been referred to NCLT as part of two lists of the RBI. Since a major chunk of these non-performing assets pertain to public sector banks, recoveries from them will be a major driver of profitability and capital requirements of lenders.
“Assuming 60-65 per cent provisioning requirements on accounts to be resolved and normal slippages of ~3 per cent for 2018-19 (April-March), the credit provisions for public sector banks are estimated at 1.4-2 lakh crore for the year (vs Rs 2.71 lakh crore during FY18). Factoring in the marked-to-market losses on bond portfolios will lead to many public sector banks reporting losses during FY19 as well,” ICRA said in a note.
The rating agency estimates losses before tax of state-owned banks in the current financial year between Rs 41,900 crore and Rs 1.02 lakh crore, depending on the provisioning requirement. In the June quarter, public sector banks had reported a combined loss before tax of Rs 24,000 crore, and Rs 1.3 lakh crore in the previous financial year.
Losses were higher than the government’s capital infusion of Rs 90,000 crore in 2017-18 and can also likely top the budgeted support of Rs 65,000 crore for the current financial year that started April.
Rising losses also led to a fall in capital levels, with five of the 21 public sector banks reporting tier-I capital below the minimum regulatory level of 9 per cent.
As meeting the regulatory minimum capital ratios is crucial for servicing bonds, Icra expects announcement of capital infusion in few more state-owned during September and October to shore up their capital ratios, and in turn, their ability to service debt, said Anil Gupta, head of financial sector ratings at Icra. The government had front-loaded capital in lenders Punjab National Bank, Andhra Bank, Allahabad Bank, Corporation Bank and Indian Overseas Bank in July, which was along expected lines, he added.
Usually, the government’s annual capital infusion is scheduled for the second half of the fiscal.
MUMBAI: Sour loans of over $51 billion (Rs 1.74 lakh crore) to the power sector are likely to go to the insolvency courts after the Allahabad High Court ruling and government may be forced to float an asset reconstruction / management company (ARC/AMC) to deal with the issue, a foreign brokerage has said.
Dashing the hope of independent power producers, the Allahabad High Court on Monday turned down their petition challenging the February 12 circular from the Reserve Bank of India which said if a resolution was not found by August 27 (Monday) these accounts should be sent to bankruptcy courts. The court instead asked the Centre to talk to the central bank to get some relief for the petitioners using the provisions of the RBI Act within 15 days. “The only way out is to form a public sector ARC/AMC that manages banks’ power non-performing assets either directly or by bidding at NCLT auctions,” analysts at Bank of America Merrill Lynch said on Tuesday. It can be noted that the idea of floating such an ARC was already suggested by RBI deputy governor Viral Acharya as well as the Sunil Mehta committee.
