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Crisil Ratings report: Banks’ bad loans to go up by Rs. 60,000 crore

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In the current fiscal FY16, gross non-performing assets (NPAs) of Indian banks will rise by Rs. 60,000 crore to Rs. 4 lakh crore (4.5% of total loans),according to a Crisil Ratings report.

Important Points of the report :

  • Total weak assets to be at 6 per cent of total loans (similar to FY15) to Rs. 5.3 lakh crore in FY16 as against Rs. 4.7 lakh crore in FY15.
  • Exposure of banks to vulnerable sectors is expected to remain high, just the way it was in 2014-15.
  • Its’s calculations show about Rs. 80,000 crore of stressed loans could be structured under the 5/25 scheme during 2015-16.
  • Banking-sector profitability will remain weak with return on assets (RoA) staying flat at 0.8 per cent in the current fiscal.
  • Private-sector banks will continue to outperform the industry with RoA of 1.6 per cent compared with 0.5 per cent for PSBs.
  • The gross NPAs are seen edging up by 20 basis points (bps) to 4.5 per cent of advances.
  • As much as 40 per cent of assets restructured between 2011-14 have degenerated to NPAs.
  • Flexibly structured project loans (under 5/25 scheme) will enable lower slippages from large exposures. However, it can partially mask asset-quality pressures as reported NPAs may not be a true reflection of the extent of stress in banks.
  • Generation of capital won’t be easy for PSBs given their muted profitability and difficulty in diluting government’s stake because of poor valuations.
  • Investor appetite for non-equity Tier I instruments is yet to be fully tested. Consequently, we expect PSBs to grow at half the pace of private-banks for the next four years.
  • The slowdown in growth of PSBs will have beneficial rub-off of reducing their capital requirement by Rs. 30,000 crore.

Capital requirement :

  • To meet Basel III regulations, banks needed to raise Rs. 4.7 lakh crore till March 31, 2019.
  • Banks have been raised Rs. 1 lakh crore so far.
  • PSBs will now have to raise Rs.2.6 lakh crore and private banks Rs.1.1 lakh crore up to March 2019.

Definition of Non Performing Asset :

  • A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained ‘past due’ for a specified period of time.
  • In simple terms, an asset is tagged as non performing when it ceases to generate income for the lender.

About CRISIL rating :

  • Full Form : Credit Rating Information Services of India Limited
  • Founded : 1987
  • Headquaters : Mumbai
  • It is a global analytical company providing ratings, research, and risk and policy advisory services.
  • CRISIL’s majority shareholder is Standard & Poor’s, a division of McGraw-Hill Financial and provider of financial market intelligence.
  • CRISIL’s businesses can be divided into three broad categories
  1. Ratings,
  2. Research and
  3. Advisory.

The company’s equity research covers over 90 per cent of the global trading volumes and 88 per cent of the global market capitalisation.