Banks need Rs 18k cr for 12 tainted a/cs

Indian banks need to provide a bare minimum Rs 18,000 crore additionally towards the 12 accounts identified by the RBI for reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code in FY18, estimates India Ratings and Research (Ind-Ra).

Ind-Ra’s analysis pegs the weighted average provisioning currently at 42% by banks towards the 12 identified accounts. Ind-Ra forecasts the additional provisioning to eat into banks’ profits by around 25% in FY18. This indicates a shave-off in return on assets of 12 basis points in FY18.

Out of the total Rs 18,000 crore required for provisioning, the iron and steel sector contributes around Rs 10,500 crore and the infrastructure sector Rs 4,100 crore.

The iron and steel sector had faced severe stress at the time of the ‘Asset Quality Review’ exercise conducted by the RBI last fiscal. The 12 accounts are broadly classified across five sectors, which have been further reclassified as iron and steel, infrastructure and others in Ind-Ra’s study. The weighted average provisioning of 45% (as of March 2017) towards the iron and steel sector exposure continues to be the highest across all sectors.

The weighted average provisioning as of March 2017 for the infrastructure sector exposure is 36%. Ind-Ra highlights much of the unrecognised stress forms a part of the infrastructure sector where a going concern approach towards resolution could fetch a more favourable value in comparison to a liquidation approach.

It notes that the new minimum required provisioning stands at 50% towards each of the 12 identified accounts, which indicates that banks with average provisioning of 50% on these accounts may also need to provide additional provisions to reach 50% towards each of the 12 accounts.