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


New Delhi, Feb 9: Corporate loans worth nearly Rs 2 trillion may turn bad in the next 12-18 months, according to a India Ratings report, 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.
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.