Moneycontrol Bureau The percentage of gross non performing assets (GNPAs) for the banking sector is expected to worsen from 3.9 percent of advances in financial year 2013-14 to about 4-4.2 percent in 2014-15, according a report by ICRA. The report analyzed the performance of the 26 public-sector (PSBs) and 15 private-sector banks, which together account for 90 percent of the credit portfolio of all commercial banks in India, for the June quarter and presented the outlook for the full year. Asset quality pressures continued to take a toll of banks performance during the first quarter. The rate of generation of fresh non-performing assets (NPAs) too remained elevated for PSBs (3.5 percent), and as result, their gross NPAs increased by 20 basis points (bps) to 4.6 percent in Q1. The NPAs of private banks also increased by 20 basis points to 2.0 percent for the same quarter, ICRA said. However, it added that there was a significant drop in fresh referrals to the corporate debt restructuring cell. If the current trend were to continue, one may expect some containment of the standard restructured book, it said. Overall, the gross NPA percentage plus 30 percent of standard restructured advances remains large at 5.5-5.7 percent (around Rs 3.5-3.7 trillion as of June 2014) and may continue to impact profitability over the short term, according to ICRA. Going forward, in addition to economic activity, management on large steel exposure (0.6 percent of banking credit), the Supreme Courts decision on coal blocks, and deleveraging efforts by large corporate groups, among other factors, could shape the asset quality profile of banks. Sale of NPAs to asset reconstruction companies (ARCs) has also influenced the reported Gross NPA percentage -- the gross NPA percentage would have been higher by 20-30 bps if there were no sales to ARCs in FY2014, ICRA said. However, the sale of NPAs is expected to decline in the rest of FY2015 with the Reserve Bank of India (RBI) now prescribing that ARCs must invest and hold 15 percent in security receipts (SRs) as against 5 percent earlier. Going forward, ICRA expects PSBs gross NPAs to be at 4.4-4.7 percent as on March 31, 2015, as against 4.4 percent as on March 31, 2014 and 4.6 percent as on June 30, 2014. Overall, the gross NPAs of the banking sector (PSBs + private banks) could be at 4-4.2 percent as on March 2015, as against 3.9 percent as on March 2014 and 4.0 percent as on June.

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