Rs3.8 trillion from 70 A/Cs need NCLT resolution by September

Mumbai: Nearly 70 large accounts with exposure worth Rs 3.8 trillion will require resolution under the Reserve Bank's revised framework by September, warns a report.

These accounts are mainly from the power, engineering, procurement, and construction (EPC) and telecom sectors.

The report also said state-run banks are estimated to report pre-tax loss of Rs 41,900-1,01,600 crore in the current fiscal depending on the haircuts they may have to undertake on stressed assets undergoing resolution.

In FY18, PSBs reported a loss before tax of Rs 1.30 trillion.

"We estimate an additional Rs 3.8 trillion of exposure across 70 large accounts to require resolution by September 1," rating agency Icra's head for financial sector ratings Anil Gupta said on Wednesday.

Of these, 34 accounts total 41,000 mw of power generation capacity with total debt of Rs 2 trillion. This accounts will require a resolution under the revised resolution framework.

Of the Rs 3.8-trillion exposure, the agency estimates that nearly 92 per cent is already classified as NPAs by the lenders.

Gupta said with limited recovery witnessed in some of the earlier cases undergoing resolution except for accounts belonging to steel sector and high share of power sector exposure in 70 large accounts; a significant uncertainty prevails on the haircuts banks may need to take upon resolution.

In a scenario of 60-65 per cent provisioning requirements on accounts to be resolved and normal slippages of 3 per cent, the credit provisions for PSBs are estimated at Rs 1.4-2 trillion, which in addition to losses on bond portfolios will translate in overall losses for PSBs during FY19, he said.

The report said with the ongoing resolution of stressed assets, gross NPAs and net NPAs for banking sector are likely to come down to 10 per cent and 4.3 per cent, respectively by March 2019, which otherwise could have been higher at 12.2 per cent and 5.6 per cent, respectively.

As of March 2018, gross NPAs and net NPAs were at 11.6 per cent and 6.2 per cent, respectively. The report expects credit provisions for private sector banks to come down to Rs 22,500-33,300 crore in FY19 as against Rs 50,300 crore in FY18.

The report said state-run banks are estimated to report pre-tax loss of Rs 41,900-1,01,600 crore in the current fiscal depending on the haircuts they may have to undertake on stressed assets undergoing resolution.

In FY18, PSBs reported a loss before tax of Rs 1.30 trillion.

"Cumulatively, the losses will surpass the budgeted capital infusion of Rs 1.55 trillion for PSBs by government of during FY18 and FY19," the agency said.

Gupta said government will have to front-load the capital infusion during the current year, but may also have to upsize the budgeted capital, if the PSBs are not able to raise capital from alternate sources.

PSBs may require capital of Rs 1.2-1.8 trillion in FY19, if they were to meet regulatory capital ratios including capital conservation buffers.