Deteriorating asset quality will put further pressure on banks during 2015 leading to downgrading of rating and make international operations, funding etc. much more difficult, according to the paper brought out by the Assocham on 'Non Performing Assets : Current and Expected Scenario'.
As per the study, It would also attract additional provisioning which would further put pressure on the profits of banks which even otherwise are already under tremendous stress.
This would reduce the effective internal source of increasing capital which is even under a lot of pressure on account of the impending BASEL-III guidelines and the capital adequacy ratio is adversely affected.
Assocham report has further stated that the gross NPAs are expected to be 4.4-4.7% for public sector banks by March 2015 (as against 4.4% as on March 2014) and 4.0-4.2% for banks as a whole (as against 3.9% for March 2014). In 2013-14 saw, Rs 1.2 trillion incremental restructuring, Assocham expect around the same figure in 2014-15.
Weak assets in banking sector likely to be 5.7% by March 2015 from 5.6% in March 2014 and 4.3% in March 2013, bad and restructured loans are expected to touch the 15% mark by the end of the financial year 2014-15.
The Paper further said, Standard assets incremental restructuring to continue in 2014-15 and not much headway expected in sale of assets to ARCs after the guidelines have been changed. RoA (Return on Assets) likely to remain below 5 year average of 1.1%. Extension of Basel III implementation guidelines to provide a temporary breather and capital raising will remain a major challenge for PSUs Banks.
For reducing NPAs, Assocham has suggested the 4-pronged strategy for early recognition of stress and remedial action thereafter. Some of the measures could be categorized under Preventive Management and Corrective Management.
>Financial signals emanating from accounts need to be captured that could be possibly indicating to a stress in the account. Some of these are constant irregularity in the account, devolvement of LCs and LGs, skewed debt equity ratio, operating/net loss, low capacity utilization at plant, overdue wage and power bills etc.
>Issues from the management front also need to be closely looked into like non furnishing of information, change in ownership pattern without the knowledge of lenders, cooked up accounts, diversion of funds etc.
>The signals emanating from the account of a borrower need to be captured and steps need to be taken to take immediate corrective action. Some of the signals could be reduced operations in the account, opening of account(s) with other banks, returning of cheques/bills, frequent requests for temporary enhancement in limits, delay in submitting financial data, not adapting new technology.
>Corrective Management would include One Tie Settlement, resolution through DRTs/Lok Adalats, taking help of the SARFAESI Act, Sale of assets to ARCs etc.
