[caption id="attachment_12655" align="alignnone" width="288"] File Photo[/caption]
Bad news about the Indian banking sector refuses to die down. Renny Thomas, Senior Partner, McKinsey & Co, and leader of the firm's financial services practice, said that the stressed assets of the Indian banking sector are currently greater than its net worth, with the potential of putting the entire equity base of banks at risk. Stressed assets had crossed Rs10 lakh crore in December 2016, but the provisioning against these levels is only Rs3 lakh crore, he said. He argued that the industry structure as it exists today is sub-optimal with far too many public sector banks in existence and made the case for more mergers.
However, one has to move beyond consolidation in order to attract capital and talent into State-owned banks on a sustainable basis, he said.
Calling for a structural overhaul, a systemic intervention to resolve the issue of non-performing assets (NPAs) and spur innovation and transformation, Thomas said this could lead to the overall credit volume moving up by more than 120 percent from the current levels over the next five years in a favourable scenario, compared to a contraction if status quo is maintained.
On the other hand, India Ratings and Research (Ind-Ra) said in a report that Indian banks are sitting on unrecognized stressed loans worth Rs7.7 lakh crore, and corporate and SME loans aggregating Rs2.60 lakh crore could potentially be recognized as stressed loans by FY19.
The credit rating agency's study pegs stressed corporate and SME debt at 22 percent of total bank credit.
"While a sizeable proportion of the unrecognized stressed exposure has strong group linkage or some form of parental support, potentially half of it could further slip in the next 12-18 months. The recognized stressed corporate and SME loans in the system stand at around 12 percent of total bank credit," said the study.
In the report 'FY18 bank outlook: the long tail of credit costs to subdue profitability despite plateauing stressed assets', Ind-Ra assessed that impaired assets will peak at 12.5-13 percent by FY18/FY19.
"Credit costs, however, will show an extended recovery period (FY18 forecast: 185 basis points (bps); FY16: 230 bps), as a large proportion of recently-acquired higher-bucket non-performing loans keep aging.
"This will keep the return on assets (RoAs) for public sector banks and private sector banks at around 20 bps below their respective long-term medians," the study said.
(By M K Shukla and Rakesh Ranjan)
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By IndianMandarins - 2017-05-18 10:00:33
[caption id="attachment_12655" align="alignnone" width="288"] File Photo[/caption]
Bad news about the Indian banking sector refuses to die down. Renny Thomas, Senior Partner, McKinsey & Co, and leader of the firm's financial services practice, said that the stressed assets of the Indian banking sector are currently greater than its net worth, with the potential of putting the entire equity base of banks at risk. Stressed assets had crossed Rs10 lakh crore in December 2016, but the provisioning against these levels is only Rs3 lakh crore, he said. He argued that the industry structure as it exists today is sub-optimal with far too many public sector banks in existence and made the case for more mergers.
However, one has to move beyond consolidation in order to attract capital and talent into State-owned banks on a sustainable basis, he said.
Calling for a structural overhaul, a systemic intervention to resolve the issue of non-performing assets (NPAs) and spur innovation and transformation, Thomas said this could lead to the overall credit volume moving up by more than 120 percent from the current levels over the next five years in a favourable scenario, compared to a contraction if status quo is maintained.
On the other hand, India Ratings and Research (Ind-Ra) said in a report that Indian banks are sitting on unrecognized stressed loans worth Rs7.7 lakh crore, and corporate and SME loans aggregating Rs2.60 lakh crore could potentially be recognized as stressed loans by FY19.
The credit rating agency's study pegs stressed corporate and SME debt at 22 percent of total bank credit.
"While a sizeable proportion of the unrecognized stressed exposure has strong group linkage or some form of parental support, potentially half of it could further slip in the next 12-18 months. The recognized stressed corporate and SME loans in the system stand at around 12 percent of total bank credit," said the study.
In the report 'FY18 bank outlook: the long tail of credit costs to subdue profitability despite plateauing stressed assets', Ind-Ra assessed that impaired assets will peak at 12.5-13 percent by FY18/FY19.
"Credit costs, however, will show an extended recovery period (FY18 forecast: 185 basis points (bps); FY16: 230 bps), as a large proportion of recently-acquired higher-bucket non-performing loans keep aging.
"This will keep the return on assets (RoAs) for public sector banks and private sector banks at around 20 bps below their respective long-term medians," the study said.
(By M K Shukla and Rakesh Ranjan)
