Indian banks will have to make an additional provisioning of at least Rs 18,000 crore in the financial year ending March 2018 towards 12 of the country's biggest loan defaulters, a study has revealed.
The RBI had, last month, identified 12 accounts, each having over Rs 5,000 crore in outstanding loans, for immediate referral for resolution under the IBC.
These 12 companies account for Rs 1.78 trillion in non-performing assets of banks, according to RBI data. The total NPA of banks is estimated to be around Rs 8 trillion.
Fitch Group-owned India Ratings and Research estimates the current provisioning by banks towards these accounts is around 42 per cent and the additional provisioning will "eat into" the profits of banks by around 25 per cent this year.
"The additional provision burden could add disproportionate pressure on the profit and loss accounts of a few mid-size public sector banks and hence the agency’s outlook towards these banks remains negative," the ratings agency said on Tuesday.
The additional provision requirement may stretch the profitability of a few large state-owned banks in the current financial year, putting the standalone ratings of these entities under pressure, India Ratings further added.
A large portion of the stressed assets are in two sectors—iron, steel and infrastructure. The weighted average provisioning towards the iron and steel sector stood at 45 per cent as of March 2017, highest across all sectors. The weighted average provisioning as of March 2017 for the infrastructure sector exposure was 36 per cent.
India Ratings says, of the total Rs 18,000 crore in required additional provisioning, the iron and steel sector would alone require around Rs 10,400 crore or 58 per cent, while infrastructure sector would need around 22 per cent or Rs 4,100 crore.
The unrecognised exposure to the infrastructure sector stands at a huge of Rs 7.7 trillion, of which 35 per cent is expected to slip into the substandard category over 12-18 months, it estimates.
Essar Steel, one of the 12 companies identified by the central bank for immediate action, had filed a petition in the Gujarat High Court challenging the RBI directive.
The petition was dismissed by the High Court on Monday, paving the way for RBI to ahead with the process to clean up NPAs.
