NPA recognition likely to get prolonged till FY20

Non-performing asset recognition is likely to get prolonged till the next fiscal year and can put Rs 5.24 trillion debt in FY20 at risk increasing the potential bad loan stress, thanks to the recent Reserve Bank guidelines on delivery of bank credit, says a report. The RBI had last month come out with the guidelines stipulating that from April 2019, minimum 40 percent of fund- based limits of a borrower is required to be structured in the form of a 'loan component' with a fixed maturity. It can be noted that a majority of analysts as well as the RBI are expecting that the dud asset recognition cycle has peaked and wanting to focus on the resolution. Under its base case scenario, the GNPA ratio of all banks may come down to 10.3 percent by March 2019 from 10.8 percent in September 2018, the RBI has said. In a report, domestic ratings agency India Ratings said Friday, the implementation of the new guidelines "can put at risk Rs 5.24 trillion debt in FY19, which could result in an increase in potential stress and extend the non-performing asset recognition cycle for banks to FY20." As the implementation will require a rollover of Rs 4.10 trillion of working capital loans in FY20. Of this, Rs 1.90 trillion is likely to face a "high or very high rollover risks" owing to weak operating cashflows and a high proportion of rollover requirement vis--vis debt outstanding at FY19.