A man counts Indian rupee banknotes in an arranged photograph in Varanasi, Uttar Pradesh, India, (Photographer: Dhiraj Singh/Bloomberg)

Banks’ Quarterly Provisioning Burden To Fall By Rs 27,000 Crore After RBI Relief, Crisil Says

Indian lenders’ provisioning burden will fall by Rs 27,000 crore in the quarter ended March on central bank’s relief for accounts under insolvency proceedings, according to Crisil’s estimates.

Provisioning relief of Rs 8,000 crore will come from spreading mark-to-market losses over four quarters, Crisil said. Another Rs 19,000 crore relief will flow in from lower provisioning requirement, it said.

The Reserve Bank of India allowed banks to reduce provisioning on accounts under insolvency resolution at the National Company Law Tribunal. They are now required to set aside 40 percent of the secured loans compared with 50 percent earlier. Banks with over 40 percent provisioning against such accounts could consider writing back the excess amount. The RBI also allowed banks to spread mark-to- market losses on investments made in three months ended December and March over four quarters.

A sharp rise in bond yields since September, ageing bad loans and the RBI’s decision to withdraw earlier restructuring schemes is expected to hit profitability of banks in the fourth quarter.

Banks’ Quarterly Provisioning Burden To Fall By Rs 27,000 Crore After RBI Relief, Crisil Says

High provisioning burden will continue to weigh on profits in the new financial year that began this month, according to Vydianathan Ramaswamy, associate director at Crisil Ratings. The operating profitability of banks should stabilise on the back of incremental credit growth and lower interest reversals after reduction in fresh slippages, he said.

There resolution of stressed assets under the new bankruptcy law also holds out hope.

The silver lining in fiscal 2019 is expected to be recoveries from the resolution of few large accounts under the IBC [Insolvency and Bankruptcy Code], especially from the steel sector, which recently saw multiple bids from investors. 
Vydianathan Ramaswamy, Associate Director, CRISIL Ratings

Further respite to bank balance sheets, he said, would depend on the extent and timing of the recovery from other stressed assets.