Provisioning pressures on banks likely to reduce in FY19, says ICRA

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The banking industry may see reduced pressure of provisioning for bad loans in FY19 over the previous year, according to rating agency ICRA. 

The credit provisions for public sector banks (PSBs) are estimated at Rs 1.4-2 trillion for FY19, assuming 60-65 per cent provisioning requirements on accounts to be resolved and normal slippages of about 3 per cent. This estimate is nearly half of the actual provisioning level of Rs 2.71 trillion, seen by PSBs in FY18. 

ICRA expects the credit provisions for private banks to reduce to Rs 225-333 billion during FY19 as against Rs 503 billion during FY18. 

“With Rs 4 trillion debt across 40 large borrowers, already under the RBI, directed resolution through Insolvency and Bankruptcy Code (IBC) and likelihood of more large borrowers being resolved, 60 per cent of the non-performing loans (including loans earlier written off) of the banking sector are under active resolution,” said Anil Gupta, head, financial sector ratings, ICRA. 


Fresh slippages for the banking sector during Q1 of the current fiscal moderated to Rs 920 billion as compared to Rs 2.44 trillion during Q4FY18 and Rs 5.37 trillion during FY18. 

Gross Non-Performing Assets (GNPAs) for the sector declined for the first time after witnessing a consistent increase in the last 18 quarters. The GNPAs declined to Rs 10 trillion as on June 30, 2018, or 11.52 per cent as compared to Rs 10.23 trillion, or 11.68 per cent as on March 31. 

While the last year saw a huge rise in provisions, bankers said that the industry has almost completed the recognition stage and moving onto the resolution stage. The performance of the banking sector is heavily riding on the resolution of the large stressed assets. 


“With ongoing resolution of stressed assets, despite fresh slippages, we expect GNPAs and NNPAs for the banking sector are likely to reduce to Rs 10 per cent and 4.3 per cent respectively by March 2019, the same may be higher at 12.2 per cent and 5.6 per cent respectively in absence of resolution,” added Gupta.  According to ICRA, the pickup in the pace of resolution is positive, but tough times are expected to continue for banks, given the limited recoveries being witnessed in many of the earlier cases undergoing resolution, except for steel accounts. 

However, PSBs are likely to continue posting losses factoring in the marked to market losses on bond portfolios, said ICRA.

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