Fresh NPAs to moderate in FY'20: ICRA

MUMBAI: Fresh NPAs in the banking sector are expected to moderate to 1.9 to 2.4 perc ent in FY'20, due to aggressive recovery drive and write offs by banks according to ratings firm Icra. Public sector banks are expected to turn profitable after four consecutive years of losses.
Capital infusion by the government too will help. The ratings firm has revised the outlook of six public sector banks of which five are positive revisions.

Fresh NPA generation expected to be 1.9-2.4% for FY20 as compared to an estimated 3.7% for FY19 Adjusted for recoveries, upgrades and write-down, Icra expects gross NPAs of the banking sector to 8.3 lakh crore or 7.9 per cent for March 2020, as compared to estimated 9.2 per cent as of March 2019. With capital infusion of Rs 50,000 crore during the December quarter, net NPAs are expected to fall further.

However, even with the new Bankruptcy law in place, recoveries through the cases referred to the National Company law Tribunal (NCLT) have not been very large, it said. But recoveries of around Rs 1.6-Rs1.7 lakh crore from accounts referred to NCLT amount to 75 to 80 per cent recoveries from these accounts and this is higher than the provisions made by these banks.

Public sector bank losses estimated at Rs 93,100 crore in FY’19 to be lower than capital infusion of Rs 1.22 lakh crore. Strong NII Growth, improved treasury income and stable credit provisions drive improvement in profitability of private sector banks.

Though public sector banks are expected to post losses in FY’19, they could turnaround in FY’20. ‘`In FY’20, with expected credit loss provisioning we expect 14 public sector banks to be potentially profitable in our base case scenario. But overall return on assets and return on equity may remain weak” according to Anil Gupta, vice-president and sector head, financial sector ratings at Icra. “Decline in credit provisions for Private banks to drive a sharp growth in their net profits and return on equity for FY’20”

Icra has revised the ratings outlook of four public sector banks from negative to stable including, Bank of India, Bank of Maharshtra, Punjab National Bank and Oriental Bank of Commerce. It revised upward, the outlook for IDBI Bank from negative to ‘Rating watch with developing implications’. While the outlook for Punjab and Sind Bank was lowered from stable to negative.