Banking sector stares at Rs 40,000 cr NPAs

Banking sector stares at Rs 40,000 cr NPAs
The banking sector fears accretion of more than Rs 40,000 crore of bad loans to its books, following recent classification of eight consortium accounts of Axis Bank as non-performing assets by the RBI.

The Reserve Bank has directed certain reclassifications in the private sector lender’s asset classification and provisioning as on March 2017, subsequent to the annual Risk Based Supervision (RBS) exercise conducted for 2016-17.

As a result, Axis Bank had to reclassify nine standard accounts into NPAs. Of these, eight accounts are part of consortium lending, according to the latest quarterly results announced by the bank.

As on June 2017, Axis Bank claimed, these nine accounts were classified as standard assets across most consortium banks, with only around 6% of their outstanding classified as NPAs.

According to estimates, total outstanding loan of these accounts at the end of June 2017 were about Rs 42,000 crore. This decision has triggered fear among other consortium members about status of these loan exposure related to these accounts.

“It is going to have an impact on all the consortium lenders. Banks have to reconcile these accounts as NPA sooner or later. Reclassification by others may happen over two quarters,” Suresh Ganapathy of Macquarie Capital Securities said.

Banks are already saddled with NPAs of over Rs 8 lakh crore and there seems to be no respite from the mounting bad loans as initial second quarterly numbers posted by some banks are not encouraging.

Major contributors to the mess have been power, steel, road infra and textile sectors.

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