Non-performing assets to double in two years: ICRA

ET Bureau Jun 1, 2013, 10.39AM IST ("There could be a steep increase) MUMBAI: The non-performing loans in the banking system are set to double by June 2015 from 3.3% in March once the Reserve Bank of India's revised guidelines on bad asset classification come into force, ICRA said on Friday, a day after central bank issued the revised prudential guidelines on loan restructuring. "There could be a steep increase in the reported NPA percentage from 3.3% as on March 2013 to as high as 5.5-6.5% in June 30, 2015," it said in a report. The increase in bad loans, the rating company, said would be because the regulatory forbearance on classification of old restructured advances (except for project loans yet to achieve commencement of operation) would cease by April 1, 2015. The RBI came up with new guidelines on restructured advances and non-performing assets (NPA) on Thursday. As per the new norms, standard account on restructuring will be immediately classified as NPA on restructuring from April, 2015, with certain exceptions. On the stringent conditions imposed for restructuring by RBI, the rating agency said that restructuring would be more difficult, prompting unviable exposures to slip into NPA category. It, however, noted that tighter norms for restructuring would increase transparency with access to more information for investors. The RBI has said that provisioning on old restructured accounts has to go up to 3.5% as on March 31, 2014, 4.25% as on March 31, 2015, and further to 5% as on March 31, 2016, from the current 2.75%. "As for 2013-14, if restructured advances get reduced by 20% from the March 2013 levels, there would be no impact on P&L of banks in FY14. However, medium-term profitability is expected to get impacted by 1-2 bps of average total assets on account of higher provision on restructured advances," it said. The new guidelines, the rating agency feels, would also reduce the level of restructured advances and flow of restructured advances for most banks as they would have to restructure loans if the date of commencement of commercial operation is delayed by one year. Till then, the loan will be treated as a standard asset.