Three years ago, Indian bankers had the belief that the assets they had financed were just facing temporary headwinds and would soon begin to pay up. Hence, they tweaked loan clauses to give borrowers some leeway in payment.

What followed was the revelation that not only some of these assets, but even lenders are in their twilight zone.

Most of the restructured loans are now bad and those that were still disguised as standard have been forcibly stripped off their label and clubbed with non-performing assets (NPAs).

Of course, it took another regulatory diktat to make banks remove the disguise of standard from their restructured loans.

A February circular by the Reserve Bank of India (RBI) put an end to all forbearance, thereby making every restructured loan an NPA. That has caused the bad loan stockpile to swell to Rs9.8 trillion, or roughly 12% of the loans of the 38 listed banks. Needless to say, public sector lenders carry 88% of these dud assets on their books.

The removal of the disguise on restructured loans was the biggest reason to push public sector lenders and even a private lender, Axis Bank Ltd, into losses. Other private banks found their profits hit badly.

Considering the poor capital position of public sector lenders with 11 of them already under prompt corrective action (PCA) of the Reserve Bank of India (RBI), the capital infusion by the government went into a sinkhole of bad loans. The central government poured Rs88,139 crore capital into the lenders it owns, with the weakest of them getting the biggest share in recapitalization.

But all of this seems to have gone into provisioning of toxic assets. Indeed, public sector lenders did all kinds of provisioning in the fourth quarter, and some had to take a little leeway under RBI rules to spread provisioning over four quarters. Lenders provided for bad loans, for bond losses and for employee costs. At the aggregate level, public sector lenders had to provide Rs1.22 trillion during the fourth quarter, a 127% rise from a year ago.

The mantra during the past two fiscal years has been to provide, provide and provide. Bankers don’t see anything different in the first half of 2018-19, too. As bad loans under the Insolvency and Bankruptcy Code (IBC) begin to get resolved, the provisioning load will lighten but not until September, bankers feel. The chiefs of State Bank of India, Bank of Baroda and even scam-hit Punjab National Bank said that reversals in credit costs would be only towards the end of FY19.

So, which lender will see the sunrise and which one would go down?

The answer to that depends on how the IBC cases are resolved and the haircuts involved. But the survivors may not reflect their historic size or form.

Stocks of most public sector lenders are trading at a discount to estimated book value for fiscal year 2020, an indication that investors are far from sanguine on their prospects.