The issue of impaired assets may be far from over for the banking system. As the bad loans are on a steady rise, new RBI guidelines are expected to add over Rs 2.8 trillion worth of loans in NPA category.
According to a report, gross non-performing assets have grown by 34.5 per cent in the December quarter.
Even as bankers guide towards a better position with regard to bad loans, rating agency Care has said the issue of impaired assets is not yet over, including on recognition and accretion of loans into the dud assets category.
In the report based on the performances of 30 lenders, including 17 private sector banks and 13 state-run ones, the agency said the quantum of gross NPAs moved up to 9.45 per cent as of December from 8.34 per cent a year ago.
While private sector banks’ bad loans ratio was maintained broadly at 4.1 per cent, their state-run counterparts registered a spike in the proportion of dud assets at 12.4 per cent.
“It does appear that the worst may not yet be over for public sector banks with regards to NPAs and March 2018 would be the next touch point that will provide further guidance,” Care said.
Public sector banks had a weaker performance on various indicators, including the key parameter of NPAs and also profitability, according to the agency. While the private sector lenders’ profitability grew during the quarter, the state-run ones faced a loss of Rs 11,000 crore, primarily dented by their provisions of Rs 51,000 crore.
Interest income grew 8.9 per cent as against a 2.3 per cent increase in interest expenditure, while net interest income for these 30 banks shot up 22.4 per cent, it said, adding other income declined due to hardening of the bond yields.
New RBI guidelines to increase volume of stressed loans
Over Rs 2.8 trillion worth of loans, where payments have remained outstanding for 60-90 days, carry the risk of slipping into the category of NPAs due to the revised framework for stressed loans.
According to the data in the RBI’s Financial Stability Report, SMA2 loans accounted for close to 3.5 per cent of bank loans in September 2017. The outstanding loans of scheduled commercial banks were Rs 80 trillion on September 29, 2017. Thus, the amount of loans that carry a high risk of slippage into the NPA category over the next few quarters is about Rs 2.8 trillion.
Top public sector banks already saddled with non-performing assets (NPAs) built up over the last five years now find themselves further cornered as failure to resolve these restructured loans could lead to a jump in provisions, eroding profitability and depleting the already low level of capital. They may be forced to go to the government for more capital.
As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMAs) depending upon the period of default.
Classification of SMA would depend on the number of days (1- 90) for which principal or interest have remained overdue.
“As soon as there is a default in the borrower entity’s account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default,” RBI said.
The resolution plan (RP) may involve any actions/plans/ reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities/investors, change in ownership, or restructuring.
The notification said that if a resolution plan in respect of large accounts is not implemented as per the timelines specified, lenders will be required to file insolvency application, singly or jointly, under the IBC, 2016, within 15 days from the expiry of the specified timeline.
All lenders are required to submit report to Central Repository of Information on Large Credits (CRILC) on a monthly basis effective April 1, 2018. In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs 5 crore and above), on a weekly basis, at the close of business every Friday, or the preceding working day if Friday happens to be a holiday.
The first such weekly report shall be submitted for the week ending February 23, 2018, the notification said. The new guidelines have specified framework for early identification and reporting of stressed assets. In respect of accounts with aggregate exposure of the lenders at Rs 2,000 crore and above, on or after March 1, 2018 (reference date), resolution plan RP should be implemented within 180 days.
“If in default after the reference date, then 180 days from the date of first such default,” the notification said.
(With inputs from PTI)