Banking sector NPAs could rise in FY'15, says Icra

ET Bureau Sep 4, 2014, 06.38PM IST

MUMBAI: Asset quality pressures continue to haunt public sector banks even as policy paralysis is being addressed as measures to revive the economy are being announced by the policy makers. Moreover, new investment norms for asset reconstruction companies too could add to the NPApile up.

Fresh non-perfoming assets or NPAs of public sector banks are estimated to be at 3.5% of advances during the quarter ended June'14, according to a study by ratings firm Icra. Their gross NPAs increased by 20 basis points (bps) to 4.6% during the quarter. Asset quality of private sector banks too continued to remain under pressure as their NPAs also increased by 20 bps to 2.0% during the quarter.

However, there was a significant drop in the number of fresh cases of loans being refered to the corporate debt restructuring or CDR Cell for restructuring during the first of FY'15.

The Icra study notes that the level of NPAs in the banking system gets understated as a sizeable amount of loans are sold to asset reconstruction companies or ARCs. It says that the gross NPA percentage would have been higher by 20-30 bps if there were no sales to ARCs .

But sale of NPAs to ARCs is expected to decline in the rest of the current financial year ending March'15 as the Reserve Bank of India has prescribed that ARCs must invest and hold 15% in Security Receipts (SRs) as against 5% earlier.

Icra expects public sector banks' gross NPAs to be at 4.4-4.7% as on March 31, 2015, as against 4.4% as on March 31, 2014 and 4.6% as on June 30, 2014. Overall, the Gross NPAs of the banking sector including both the government owned as well as private banks could be at 4-4.2% as in March 2015, as against 3.9% as in March 2014 and 4.0% as in June 2014.