Deteriorating asset quality will put pressure on bank finances

The banking sector is faced with downgrading of rating as deteriorating asset quality would put further pressure on its finances, make international operations and funding much more difficult during 2015, said the Associated Chambers of Commerce and Industry of India (Asscoham) in a report ‘Non performing assets: current and expected scenario’.

Considering this, the report said, the banking sector would attract additional provisioning, which would further put pressure on the profits of banks, which are already under tremendous stress. “This would reduce the effective internal source of increasing capital which is even under a lot of pressure on account of the impending Basel-III guidelines and the capital adequacy ratio is adversely affected,” the report said.

Gross NPAs

As per the report, the gross non-performing assets (NPAs) of banks are expected to be 4.4 to 4.7 per cent for public sector banks by March, 2015, (as against 4.4 per cent as on March, 2014) and 4-4.2 per cent for the whole banking sector (as against 3.9 per cent for March, 2014).

The year 2013-14 saw incremental restructuring of Rs.1.20 lakh crore, and Assocham believes that the same figure would be maintained for 2014-15.

“Weak asset in the banking sector is likely to be 5.7 per cent by March, 2015, as compared to 5.6 per cent in March, 2014, and 4.3 per cent in March, 2013, bad and restructured loans are expected to touch the 15 per cent mark by the end of 2014-15,” the report said.

According to the report, standard assets incremental restructuring would continue in 2014-15 and not much headway is expected in sale of assets to assert reconstruction companies after the guidelines have been changed.

For reducing NPAs, Assocham has suggested a four-pronged strategy for early recognition of stress and remedial action thereafter. The measures are categorised under ‘preventive and corrective Management’, it said.

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