Highlights: 

  • Rs 2.6 lakh crore of corporate and SMEs loans – which would be 3.2% of total bank credit will be recognised as stressed loans.
  • ICICI Bank, Yes Bank and Axis Bank have disclosed divergence in non-performing assets (NPAs).
  • Crisil Research expects absolute gross NPAs and weak assets to touch about Rs 7.8 lakh crore and Rs 8.7 lakh crore.

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The bad loan problem of Indian banks arising out of its stressed assets and non-performing assets (NPAs) may be far from over. 

India Ratings, in its report said, “We estimate that potentially Rs 2.6 lakh crore of corporate and SMEs loans – which would be 3.2% of total bank credit will be recognised as stressed loans by financial year 2019.”

Three large private sector banks have disclosed divergence in non-performing assets (NPAs), and this has made India Ratings believe that a significant portion of unrecognised bad loans in the system will start trickling in the next 12-18 months.

Solving NPA problem is a long process, RBI first needs to discipline banks

Madan Sabnavis and Manisha Sachdeva, economists at Care Ratings said, “It seems that these private sector banks may have reached a stage where they have completed the process of recognising the Non-Performing assets.”

Care Ratings said, "The question posed is whether this is a plateau reached by these banks or whether the number could increase in the coming quarters. Some of these banks have reported that they have managed to lower the volume of NPAs at a faster pace than fresh slippages, which is a positive sign for the system as it does indicate that the worst may be behind us."

"While the iron and steel sector has seen lot of stress recognition in the AQR exercise conducted by the RBI in the last fiscal, provisioning continues to remain inadequate considering higher loss given default estimates, " added India Ratings. 

India Ratings expects impaired assets to peak at 12.5%-13% by FY18/FY19 while credit costs will show an extended recovery period as a large proportion of the recently acquired higher–bucket non-performing loans keep aging. 

Crisil Research expects absolute gross NPAs and weak assets to touch about Rs 7.8 lakh crore and Rs 8.7 lakh crore, respectively by March 31, 2017. 

Further, with credit growth expected to be around 5%-8% for fiscal 2017, gross NPAs and weak asset ratios could hover 9.5% and 10.5%, respectively.