12 large NPAs: Banks may see provisions doubling this year

Source: The Hitavada      Date: 01 Jul 2017 10:38:06


June 30,


EVEN as some banks assert about being resilient in the face of insolvency resolutions in 12 largest default accounts, foreign brokerage Morgan Stanley on Friday said it saw banks’ provisioning for those accounts doubling up from the current level. The brokerage also warned  that merging small and weaker PSBs with larger ones to help tide over their capital issues would be counterproductive for the acquiring banks.

“We think provisioning on these loans is 30-40 per cent currently and could increase to around 60 per cent. This could imply 0.40-0.90 per cent increase in credit cost for the system,” Morgan Stanley said in a note. On merger plans, it warned that “Government may look at merging small, weak banks with larger and relatively stronger banks. This is clearly a negative for the large State-run banks”.The note said based on media reports, these 12 accounts constituted for Rs 2-2.5 trillion or 2.5-3 per cent of system loans.

The brokerage particularly warned that the State-run banks, which hold 70 per cent market share, did not have the ability to take higher provisions and given Government’s tightness
on funds, only the large ones could be able to access capital from the markets. The note comes a day after the country’s third largest private sector lender Axis Bank came out with data specifying that it had adequately provisioned for these 12 accounts, and three days after the largest lender SBI asserted that its profitability would not be hit by the additional provisioning.

Axis Bank said it had exposure to seven of these 12 accounts which included Essar Steel, Bhushan Steel, Bhushan Power, Lanco Infra, Amtek among others and seven of these 12 had already been sent to NCLT (National Company Law Tribunal) for possible liquidation. According to reports, the RBI has asked banks to set aside as much as 50 per cent for these 12 accounts, which has raised concerns over bank profits.