State-run lenders will narrow down their losses to Rs 50,000 crore in fiscal year 2018-19, from Rs 85,000 crore in the previous fiscal year, as the quantum of dud loans reduce, a report said Thursday. This will be the third consecutive year that the 20 state-run lenders’ grouping will be reporting a loss, ratings agency Crisil said in its report, adding higher provisioning requirements will ensure that the losses continue.
Profits for the entire banking system are expected to start improving from the second half of this fiscal and turn positive for the whole fiscal, as most large private banks are expected to report profits, it said.
“As a result of the high provisioning requirements, many PSBs (public sector banks) will continue to report losses for the third consecutive year, though the extent of this will be lesser at Rs 50,000 crore, compared with Rs 85,000 crore last fiscal,” it said in the note.
At present, the gross non-performing asset (NPA) ratio of the PSBs is at 14.7 per cent, compared with 4.7 per cent for the private sector ones, it said.
The provisioning for bad assets is expected to stay elevated at Rs 2.8 lakh crore for the system, Crisil senior director Krishnan Sitaraman said, attributing it to ageing of already identified NPAs and also the money to be set aside for the second list of 26 assets to be resolved under the bankruptcy law.
He added that the fresh slippages are reducing and it is troubles of the past which is leading to the elevated provisioning.
Of the total provisioning, 80 per cent will be by the PSBs due to the high increase in slippages over the past two years, it said.
However, in what can be a good news for the health of the country’s banks, it said the overall provision coverage ratio for bad assets will go up to 60 per cent from the earlier 50 per cent.
The rating agency said the first list of RBI-mandated 12 assets being resolved in the National Company Law Tribunal (NCLT) have adequate provisions, but the second list will require additional money to be set aside with the power sector being the highest.
Power sector is expected to see haircuts in excess of the current provisioning levels, it said, adding that the sector accounts for 25 per cent of the 100 largest NPAs in the banking system, where provisioning for a number of stressed accounts is lower than the banking system average of 50 per cent.
The focus on the retail segment, which is driving credit growth, and lower interest reversals on reduced slippages will lead to an expansion of up to 0.10 per cent in the net interest margin for the system, over the 2.5 per cent reported last fiscal, it said.