Banks need Rs18,000 cr extra provisioning for 12 large bankruptcy cases: India Ratings
Mumbai: Banks may need to keep aside at least Rs18,000 crore more as provisions for 12 large accounts referred to National Company Law Tribunal for insolvency proceedings, India Ratings said.
The rating agency’s estimate comes at a time when large banks such as State Bank of India, Axis Bank and Bank of Baroda have said that required provisioning may not be large enough to hurt profitability. India Ratings is local arm of global ratings agency Fitch.
On 13 June, the Reserve Bank of India asked banks to refer 12 accounts to NCLT. Subsequently, the central bank asked banks to keep aside 50% provision against secured exposure to all those accounts, and 100% for unsecured exposure. Banks have the option to spread the provisions over three quarters starting July-September.
According to India Ratings, weighted average provisioning of banks for the 12 accounts is at 42% and additional provisioning can impact banks’ profits by around 25% in the current financial year.
Out of the total estimated requirement of additional provisioning, those related to the iron and steel sector is around Rs10,500 crore and Rs4,100 crore for infrastructure sector, the rating agency said in a note Tuesday.
“India Ratings believes that the additional provision burden could add disproportionate pressure on the profit and loss accounts of a few mid-size public sector banks and hence the agency’s outlook towards these banks remains negative,” Udit Kariwala, senior analyst at the rating agency said in a note.