PSU banks' gross NPAs may touch 5% by March 2014, says Icra

MUMBAI: The gross non-performing assets ( NPAs) of gross non-performing assets (NPAs) have shot up by 1.20 per cent to 4.2 per cent at the end of June quarter, and it may touch the 5-per cent mark by this fiscal-end, ratings agency Icra said today.

If the news on the macroeconomic front goes bad, the NPA situation will only worsen, ICRA said in a conference call to discuss bank results.

"Asset quality stress will continue within the state-run banks and we see the gross NPAs touching 4.8-5 per cent level by March 2014," Icra Senior Vice-President and co-head for financial sector ratings, Vibha Batra said.

She said the sharp spike in NPAs in the first quarter was the result of a "surprising" jump in slippages to 4.2 per cent compared to the projected 3.5 per cent and a slowdown in recoveries.

Additionally, the 26 state-run banks collectively have a restructured book of nearly 6 per cent of their total assets, which also denotes vulnerabilities, Batra said.

The private lenders will do better on the asset quality front, Batra said, adding their gross NPAs will remain broadly flat at the 2 per cent by the end of March.

She attributed the contrast between the private sector banks and their Government counterparts in asset quality to better credit selection and monitoring, and a focus on retail lending where the former have an edge on.

Asked about the source of the asset quality stress, she said the NPAs are emanating from all sectors, excluding infrastructure, retail, non-bank lenders and real estate.

Batra said the private sector may suffer a squeeze in margins because of its inability to pass on the entire increase in cost of funds to borrowers.

She said due to the owners' diktats, the public banks will not hike the lending rates for now while the private ones would be able to do only by 0.25-0.50 per cent, at a time when rates merit a hike of nearly 1.90 per cent.

Asked on the possible booking of mark to market losses by the banks, even though the RBI has given them an one time relaxation in the wake of hardening of the bond yields, following its liquidity tightening measures, Batra said such losses will not have any bearing on the ratings of banks.

However, factors like a consistent dip in profits, higher slippages and a fall in capital buffer may lead to adverse rating actions, she warned.