CRISIL believes the government's stance to provide capital only to public-sector banks (PSBs) meeting its performance thresholds - even as they reel under asset quality and profitability pressures - will force many to grow at a significantly slower pace.

In the current fiscal, gross non-performing assets (NPAs) of Indian banks are seen edging up by 20 basis points (bps) to 4.5% of advances - or rise by Rs 600 billion to Rs 4 trillion. Weak assets are expected to stay high at 6% (Rs 5.3 trillion). Worryingly, exposure of banks to vulnerable sectors is expected to remain high, just the way it was in 2014-15.

Pawan Agrawal, chief analytical officer, CRISIL Ratings said, ''Going forward, the latitude now afforded to flexibly structure project loans will enable lower slippages from large exposures. However, it can partially mask asset-quality pressures as reported NPAs may not be a true reflection of the extent of stress in banks.''