PSU banks’ bad loan formation to reduce: Report

The balance sheets of public sector banks (PSB) in India have improved and bad loan formation should moderate going forward, said a report by Morgan Stanley.

As per the report, the common equity tier-1 (CET 1) for state-run banks (excluding State Bank of India) under its coverage is now at 9.6 per cent against 9.1 per cent in F20 and 6.8 per cent in F18.

"Over the past few years, SOE banks have seen significant capital infusion by the government, lower RWA (risk-weighted assets) density, higher provisioning and some large recoveries. GNPL coverage ratio for SOE banks (excluding SBI) under our coverage has improved to 67 per cent and is 55 per cent on overall impaired loans," it said.

Noting that underwriting practices remain weak in state run banks, it said that bad loan formation in retail, agri and MSME segments at these banks, other than SBI, has been elevated over the past few years.

These segments have been a key driver of growth at most PSBs and form 50-60 per cent of the loan books.