NPA crisis not over yet: SBI may see corporate bad loans rise in second half of FY 20

Khara added that the gross bad asset value is a function of the state of the economy and the stress on balance sheets.

State Bank of India (SBI) may see some gross non-performing assets (NPAs) arising out of the corporate portfolio in the second half of FY20, a senior executive from the bank told television channel CNBCTV18 on Monday.

“We do expect some kind of headwinds from certain corporates which are probably being talked about, but I think overall since we have started providing for those NPAs, though the gross number might look different. Nevertheless, while we have started providing for those NPAs so I don’t expect that it will have a significant impact,” SBI MD for global banking and subsidiaries, Dinesh Khara said.

Khara added that the gross bad asset value is a function of the state of the economy and the stress on balance sheets.

SBI has, for quite some time, been following a policy of upfronting provisions in order to minimise shocks from credit events, Khara said.

Reserve Bank of India (RBI) said in the December 2019 edition of its Financial Stability Report (FSR) that stress tests indicate that under the baseline scenario, the GNPA ratios of all banks may increase to 9.9% by September 2020 from 9.3% in September 2019. The central bank cited changes in the macroeconomic scenario, a marginal increase in slippages and the denominator effect of declining credit growth as reasons for the expected climb in bad-loan ratios. Among bank groups, public-sector banks’ (PSB) GNPA ratio may increase to 13.2% by September 2020 from 12.7% in September 2019 under the baseline scenario.

The forecast marks a shift in the narrative that bad loans in the system have peaked. In a recent interview, RBI governor Shaktikanta Das told FE that much of the chunky stress in the system had already been identified. “I think, overall, the NPAs have been identified. Now, if suddenly a large borrower slips, and that’s a big if, naturally, it will come to be classified as a non-standard asset. But other than that, I think banks do have a sense of the NPA numbers,” Das had said.

After SBI declared its financial results for the quarter ended September, it had said that it had reached a point where its gross slippages, in the worst-case scenario, are not likely to exceed 2% of the loan book.