Huge haircut needed on largest NPAs, says CRISIL

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Financial News

Rating agency CRISIL said the banks in question would need to find an extra Rs 40,000 crore as bad loan provisioning for the 12 big-size cases being referred, on Reserve Bank of India (RBI) order, to the National Company Law Tribunal (NCLT) for resolution.

These 12 large accounts had become non-performing assets (NPAs) on the banks’ books by end-March 2016. CRISIL’s study shows the banks had already provisioned 40 per cent for these NPAs worth Rs 2 lakh crore — that is, about Rs 80,000 crore.

CRISIL believes the lenders will have to take a haircut (the term for difference between the market value of assets used as loan collateral and the amount of the loan) of 60 per cent. That means banks will have to make a total provision for Rs 120,000 crore, said Krishnan Sitaraman, senior director at CRISIL.

If banks were asked to provide the additional Rs 40,000 crore in this financial year, this would create huge pressure on their bottom line. The impact could be mitigated if they were allowed to amortise the provisioning across six to eight quarters, he said.

RBI recently ordered that these 12 large NPAs be referred for resolution under the new Insolvency and Bankruptcy Code (IBC). Time-bound resolution of these cases will indeed be a big positive for bank balance sheets, CRISIL said.

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