Banks stare at higher provisions
Mumbai: Banks' credit provisions could rise to Rs 2.4-2.6 lakh crore in 2017-18 from Rs 2 lakh crore in the previous year because of provisioning for accounts coming under the Insolvency and Bankruptcy Code (IBC) and ageing bad assets, Icra said on Monday.
According to Icra, the recent amendments to the IBC could increase provisioning requirement for banks. Last week, President Ram Nath Kovind had given his approval to the ordinance amending certain provisions of the IBC.
The amendment will keep out promoters who are wilful defaulters or those who have their accounts classified as non-performing assets (NPAs) for one year or more and are unable to settle their overdue amounts, including interest. The fear is that this will lead to banks taking a higher hair cut.
Icra's group head (financial sector ratings) Karthik Srinivasan said on Monday that with the recent amendments in IBC, the likelihood of higher losses and a further increase in credit provisions appears to be a possibility.
Icra pointed out that an increase in provisioning would result in higher losses for state-run banks. During the second quarter, banks' credit provisions rose to Rs 64,500 crore, a rise of 40 per cent sequentially and 30 per cent over the same period last year.
"With Rs 3 lakh crore of accounts likely to be resolved under IBC, the overall credit provisions are likely to be at Rs 2.4-2.6 lakh crore, including the impact of existing NPAs and provisioning on IBC accounts for 2017-18 against Rs 2 lakh crore in 2016-17," Srinivasan said.