Nearly Rs 2 trillion corporate loans may turn bad in 12-18 months: Report

Corporate loans worth nearly Rs 2 trillion may turn bad in the next 12-18 months, according to a India Ratings report on Thursday, adding that the overall additions to the non-performing loans category are seeing a downward trend.

“A meaningful proportion of mid-sized stressed corporates (1.6% of bank credit as of September 2017) continues to be standard on bank books with absolutely no form of recognition and could slip into non-performing category in the next 12-18 months,” Udit Kariwala, senior analyst-financial institutions, wrote in the report.

Kariwala added that another 1 percent of stressed assets could turn bad. These are mostly standard but restructured loans. He also pointed out that loans whose restructuring is under the central bank’s schemes may not work, according to a report in Mint.

Currently, the pool of corporate stressed loans stands at around Rs 9.6 trillion.

The Reserve Bank of India (RBI) in its Financial Stability Report released in December had said while non-performing assets (NPAs) may rise, the stress in the banking sector “while significant, appears to be bottoming out”.

According to the report, under the central bank’s base case scenario, gross NPAs in the banking sector may rise from 10.2 percent of gross advances in September to 10.8 percent in March and further to 11.1 percent by September 2018.

The rating agency stated that rise in NPAs may keep credit costs, or the percentage of provisioning against total advances, elevated for the next fiscal but they are expected to be lower than the previous year. It expects FY18 to close with a credit cost of 215 basis points (bps) for the banking sector and 180 bps in the next fiscal.

Public sector banks may need capital of Rs 2.06 trillion for a credit growth of the 8-9 percent in the financial year 2019, the report said.

In October last year, the government had announced a Rs 2.11 lakh crore bank recapitalisation plan spread over two fiscals, 2017-18 and 2018-19. Out of this, the government last month said it would infuse Rs 88,139 crore capital in 20 public sector banks (PSBs) before March 31, 2018.

“The recapitalisation amount from the government will go towards sustaining the banks. For a higher growth state-run banks may need more capital. We estimate state-run banks’ capital requirement of Rs 2.06 trillion at a modest credit expansion of 8-9 percent in FY19,” India Ratings and Research senior analyst Udit Kariwala said.

Kariwala said that a large part of the recapitalisation and the proposed capital-raising by banks is expected to go towards provisions for stressed assets.

Last month, the government allocated Rs 88,000 crore towards recapitalising public sector banks.

Economic Advisory Council to the Prime Minister (EAC-PM) chairman Bibek Debroy had said earlier that accretion of fresh non-performing assets (NPAs) of public sector banks (PSBs) has virtually stopped.

“Fresh case of NPA creation has virtually stopped. Many NPAs figures are floating, I think India’s bank NPA is not more than 3 lakh crore,” he insisted.

However, according to recent Reserve Bank data, bad loans of Public sector banks (PSBs) stood at Rs 7.34 lakh crore by the end of second quarter this fiscal, a bulk of which came from corporate defaulters.moneycontrol