Banks report better non-performing loan ratio: Fitch

New Delhi, March 28 (IANS) The Indian banking sector's non-performing loan (NPL) ratio for the nine months to December 2018 fell to 10.8 per cent from 11.5 per cent at fiscal year end 2018, according to Fitch Ratings' estimate.

Lower fresh slippages and better recoveries helped reduce absolute non-performing loans across several banks, the global financial research agency said.

Fitch Ratings, however, added that the provisioning pressures persisted with 14 out of 21 state-run banks reporting losses. Mid-sized or small state-run banks were the most affected as credit costs, despite some moderation, exceeded their weak income buffers.

"Complex legal proceedings have led to delays in the resolution of certain large NPLs among the system's $150 billion in NPLs (FY18), stretching recoveries well beyond the stipulated timeframe of 270 days," the agency said.

There has also been increasing pressure from farm loans due to a weak monsoon and loan waivers, and small and medium-sized enterprises (SMEs), it noted.

In January 2019, banks were allowed a one-time restructuring of SME loans under Rs 250 million.

The government's February 2019 announcement to inject another $7 billion into its banks by FY19 will help banks meet minimum capital norms.

But, Fitch said, it is unlikely to materially boost credit growth as banks still have to meet a 0.625 per cent capital conservation buffer in FY20 while negotiating more provisions.

"Fitch estimates that Indian banks will require an additional $23 billion by FY20 to sufficiently meet minimum Basel III capital standards, achieve 65 per cent NPL cover and pursue low double-digit loan growth," it added.

However, the agency is hopeful of large NPL resolution in 2019.

"Higher recoveries are probable in 2019 as pending cases that are well beyond the 180-day timeframe (50 per cent of total) are more likely to see some resolution during the year," the credit rating agency said.

The focus is on the Reserve Bank of India's first list of 12 large NPL accounts, which constitutes one-third of the current NPL base. Four accounts were resolved in 2018 with an average 50 per cent recovery rate.

Among the potential risks, Fitch said real-estate loans may be a casualty if the current risk aversion towards non-bank financial institutions persists.

"The liquidity squeeze -- following the default of a large non-bank in September 2018 -- has eased, but rollover risk for real-estate borrowers persists as they have been heavily funded by non-banks in recent years," Fitch said.

Non-banks depend on banks and the debt market for their funding and account for 7 per cent of total banking-sector loans.

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