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