FY18 challenging for Indian banks, NPAs to rise: Icra

Mumbai: Terming FY18 as a "challenging" year for Indian banking, domestic rating agency Icra on Thursday said newer segments like MSMEs and farmers are also reporting stress, and NPAs for listed banks will shoot up to 10.2 percent by FY18-end.

It said the April-June period saw fresh slippages shooting up to a five-quarter high of Rs 1.15 lakh crore and estimated that the system will end FY18 with slippages of Rs 3 lakh crore.

On an annualised basis, the 6.3 percent for Q1FY18 is higher than 6.2 percent (annualised) for the preceding March quarter and the 5.5 percent tracked in FY17, it said.

Apart from large corporates, trouble is also being reported from the micro, small and medium enterprises segment and the farm loans, which together contributed for half of the incremental NPAs, its group head Karthik Srinivasan told reporters over a conference call.

He said the MSMEs are facing trouble because of the transient impact of Goods and Services Tax implementation, while it is the weakening of the credit culture in the aftermath of waivers that is affecting the farm loans.

The gross NPAs for the 41 listed banks are likely to increase to Rs 8.8-9.0 trillion (9.9-10.2 percent) by March 31, 2018 from the 9.5 percent at the end of FY17.

Because of the rising NPAs, the amount of provisions to be set aside as cover will also increase.

Banks are also writing-off loans at a faster clip (Rs 30,600 crore in Q1FY18 versus Rs 22,100 crore) in order to compress the GNPA figures, and recoveries and upgrades continue to be weak, it said.

Srinivasan warned that the money set aside for the accounts in the newer list of stressed assets cases to be filed under the bankruptcy code is low, especially for the state-run lenders, and will also impact profitability.

Credit growth is expected to be slower and will come between 7-8 percent for FY18, it said.

All this will have an impact on the capital positions for the banks, it said, adding that over Rs 1.3 lakh crore in core equity capital will have to be raised by the Indian banks during the fiscal as they gear up for adhering with newer requirements under the Basel-III framework.

The agency warned that at least six state-run lenders are at the risk of undershooting the minimum capital buffers if the government does not recapitalise them.

On the additional tier-I instrument, the agency said the issuances will be lower in FY18 than in FY17, it said, pointing out instances of issues being abandoned recently by some weaker banks.

"We feel FY18 will be a challenging for banks and especially so for the public sector banks. There are pressures on asset quality, net interest incomes, profitability, provisions and capital requirements," he said.