Bad debts may have peaked in September 2017: Report

However, gross NPAs are expected to spurt by Rs 3.1 trillion by March on account of timely recognition and not because of incremental deterioration, says a Cibil report.

The worst of the bad loan problem may be behind the system, as bad debts may have peaked in September 2017, with unrecognised bad loans coming down over the past two quarters, according to a report.

However, gross NPAs are expected to spurt by Rs 3.1 trillion by March on account of timely recognition and not because of incremental deterioration, says a Cibil report. According to data from the agency, "from an economic perspective bad debt problem may have peaked in September 2017.

Though the potential future gross NPAs in total commercial lending portfolio is around Rs 54.2 trillion as of March 2018." Of this, gross recognised NPAs as of March 2018 are Rs 10.4 trillion; unrecognised NPA are worth Rs Rs 3.1 trillion, taking the overall gross NPAs to Rs 13.5 trillion; and irregular exposure or special mention accounts are worth Rs 6.6 trillion.

"Going forward it is likely that a significant portion of the Rs 3.1 trillion exposure is formally recognised as NPAs, but this spike will not be because of incremental economic deterioration of the assets but due to formal recognition of the same," says Cibil.

While Gross NPA has steadily increased from Rs 8 trillion in Mar 2017 to Rs 10.4 trillion in March 2018, unrecognised NPAs have steadily decreased from Rs 5.5 trillion in March 2017 to Rs 3.1 trillion in March 2018, it said. Exposure to irregular borrower has come down from a peak of Rs 7.9 trillion in September 2017 to Rs 6.6 trillion in March 2018, it further pointed out.

"Overall, NPA addition is expected to slow down from September 2019 as the overall NPA levels of the system is expected to remain stable with a possible downward bias, provided there is a strong recovery from identified NPAs," says the report.

This development to some extent may be owing to better payment discipline amongst corporate borrowers that coincided with the implementation of insolvency and bankruptcy code, says the report.

Commenting on the numbers, Satish Pillai, managing director and chief executive at TransUnion Cibil said, "this analysis suggests that the cumulative effort of the RBI, government and banks together are showing early signs of success as the stock of stressed assets and high risk debt is coming down across the banking system."

"The silver lining is that the overall NPA growth is expected to stabilise after September 2019 with a possibility of a decline thereon if there is a strong recovery from identified NPAs," he said. "In the year to March 2018, significant amount has shifted to recognised layer from partially recognised layer mainly driven by the February 12, 2018 RBI circular on stressed assets," he said, adding the irregular exposure of Rs 6.6 trillion may potentially be tagged as 'default' if not NPAs, as per RBI circular. From a sectoral perspective, 19 per cent of large corporate portfolio is already in recognised NPAs and 9 per cent is in the partially recognised layer.

A marginal 5 per cent of mid-corporate portfolio is in the partially recognised layer. Micro and SME segment has only 2 per cent of portfolio in the partially recognised layer in addition to 10 per cent recognised.

Of the total estimated potential NPAs in public sector banks Rs 8.6 trillion NPA are already recognised while Rs 1.7 trillion fall in the partially recognised layer which implies that about 85 per cent stress in the books has already been recognised, Pillai said.

"Based on the available data on partial NPA layer, it is probable that acceleration in NPA addition as observed in FY18 at state-run banks will subside by September 2019," Pillai said.

Of the estimated potential NPAs in private sector banks Rs 1.1 trillion is already recognised in entities with aggregate exposure above Rs 100 crore and Rs 0.7 trillion are most likely to slip into NPAs in the next few quarters as RBI pushes for resolution on these accounts. But overall private bank NPAs are estimated to increase by about Rs 0.4 trillion in the next two quarters.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)