Mumbai: Bad loans of Indian banks will rise further hit by a slowdown in business and the slow pace of economic recovery, rating agency IcraLtd, in which Moody’s Investors Service own a significant stake, said on Thursday.
The gross non-performing assets (NPAs) of banks could rise to 4.2-4.4% by March, from 4.1% as on December, Icra said. By March, the gross NPAs of state-run banks could rise to 4.8-5% of total loans in the banking system, Icra said in its baking sector update.
“Considering the current business slowdown, the stretched working capital cycles of corporates and the slow pace of economic recovery, Icra is of the view that the gross NPA percentage of the public sector banks (PSBs) would be at 4.8-5% as on March 31, 2014,” Icra said.
Gross bad loans of 40 listed Indian banks grew to 2.43 trillion at the end of December, a rise of about 36% from last year. Government banks also face issues on capitalization given the advanced capital requirements under the so-called Basel-III, Icra said.
The rise in bad loans prompted the Reserve Bank of India to come out with a road map to contain sticky assets in the economy through early recognition of stress in the system.
Besides bad loans, capital too is a major concern for Indian banks, Icra said, saying the government has been infusing bare minimum capital in PSBs.
“Although the PSBs would not need significant common equity capital in FY15, in case they are unable to mobilize additional tier I capital during that fiscal, their equity requirement could go up to 20,000 crore to 45,000 crore,” Icra said. “This could prove a challenge, given the government’s current level of capital infusion, the fiscal constraints prevailing, and the limited investor appetite for PSBs as reflected in the low valuation.”
Private banks are expected to be comfortable in terms of capital, given their higher level of current capitalization and better earnings and asset quality profile, the agency said.
