Icra said the RBI's proposed framework for the early detection of NPAs and better management of bad assets can be a positive for the sector.
Gross NPA ratio of India's public and private sector banks is expected to deteriorate further to 4.2-4.4 percent in March from the preceding quarter's 4.1 percent, dragged down by a poor show by state-run lenders, rating agency Icra today said.
"The gross NPA percentage for banking system as a whole could rise further to 4.2-4.4 percent as on March 31, from 4.1 percent as on December 31, 2013," it said in a note. Within the spectrum, the 26 public sector banks (PSBs) are likely to perform badly than their private peers on the asset quality front. The gross NPAs for this grouping will go up to 5 percent from the 4.7 per cent in December.
The rating outfit blamed this expected slippage on the current business slowdown, stretched working capital cycles of corporates and slow pace of economic recovery. Icra said the RBI's proposed framework for the early detection of NPAs and better management of bad assets can be a positive for the sector.
"The RBI framework is expected to strengthen banks' monitoring process and joint efforts for resolution/recovery and could have a positive impact on their asset quality over the medium to long term."
The rise in the bad assets, coupled with other factors like lower net interest margins, lower non-interest income, higher credit provisions and depreciation on fixed income investments, is expected to drag the PSU banks' profits by 30-40 percent in FY14 from the FY13 levels, it noted.
The agency said there are contrasts between the government banks and their private counterparts when it comes to asset quality. The 16 private sector banks' gross NPA ratio had stood at only 1.9 percent at the December quarter-end.
Highlighting the PSU banks' need to raise Rs 2-2.2 trillion in capital till FY18, Icra said they will have to show improvement on the asset quality front in order to mobilise the required capital from external investors. "Private banks are expected to be comfortable on capital, given their higher level of current capitalisation and better earnings," it said, adding this grouping will need around Rs 1 trillion in capital till FY18.
There are several banks, including the largest lender SBI, which have gross NPA ratios above 5 percent . State-run United Bank of India has been in the news over its bad loans. The Kolkata lender has had to take several tough decisions after its gross NPA ratio ballooned to over 10 percent in December.
United Bank stock price
On March 06, 2014, United Bank of India closed at Rs 27.25, up Rs 0.90, or 3.42 percent. The 52-week high of the share was Rs 66.55 and the 52-week low was Rs 23.40.
The latest book value of the company is Rs 94.89 per share. At current value, the price-to-book value of the company was 0.29.
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