Asset quality for public sector banks will remain a concern with gross non-performing assets (NPAs) expected to remain at elevated level of about 4.4 per cent in the current fiscal despite the revival in the economy, says a report.
PSU banks' gross NPAs are to be at 4.4-4.7 per cent as on March 31, 2015, as against 4.4 per cent as on March 31, 2014 and 4.6 per cent as on June 30, 2014, said the ICRA report.
"Overall, the Gross NPAs of the banking sector (PSBs and private banks) could be at 4-4.2 per cent as in March 2015, as against 3.9 per cent as in March 2014 and 4 per cent as in June 2014," it said.
During Q1, 2014-15, GDP grew by 5.7 per cent in year-on- year, as against 4.6 per cent in the previous two quarters, following pickup in industrial growth.
ICRA expects GDP growth to improve to 5.3-5.5 per cent in 2014-15 from 4.7 per cent in the previous fiscal.
Manufacturing output rose 3.5 per cent in first quarter, after having contracted by 1.4 per cent in the previous quarter.
However, it said, these are early positive signs and the sustainability of these indicators would hold the key to revival in credit growth as well as improvement in banks' asset quality profile.
The y-o-y growth figures for banks' domestic credit and deposits remain moderate, respectively, at 12.8 per cent and 12.4 per cent in the first quarter of the current fiscal.
The report said, the rate of generation of fresh non-performing assets (NPAs) remained elevated for PSBs (3.5 per cent), and as result, their gross NPAs increased by 20 basis points to 4.6 per cent in the first quarter; the NPAs of private banks also increased by 20 basis points to 2 per cent for the same quarter.
However, there was a significant drop in fresh referrals to the CDR Cell for restructuring during April-June quarter.
"If the current trend were to continue, one may expect some containment of the standard restructured book. The standard restructured book is relatively large at more than 6 per cent for PSBs and over 5 per cent for the banking system as a whole as of June 30, 2014." it said.
Overall, the Gross NPA percentage plus 30 per cent of standard restructured advances remains large at 5.5-5.7 per cent (around Rs 3.5-3.7 lakh crore as of June 2014) and may continue to impact profitability over the short term.
"Going forward, in addition to economic activity, management of one large steel exposure (estimated at 0.6 per cent of banking credit), the Supreme Court's decision on coal blocks, and deleveraging efforts by large corporate groups, among other factors, could shape the asset quality profile of banks," it said.