Game-changing banking reforms
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◘ Successful resolution of (or traction in) large-ticket NPAs referred under the Insolvency and Bankruptcy Code (IBC)✔ framework
◘ Reserve Bank of India’s stringent stressed assets resolution norms✔
◘ Government’s mega recapitalisation plan for PSBs✔ and the recent (bold) steps towards consolidation of PSBs✔ are seen as strengthening the sector.
Banking sector in months ahead
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CRISIL had predicted the reversal and improvement of credit offtake and asset quality. This is now happening. We foresee the following happening:
1. Return on assets for the whole system will be up at 0.1% in the current fiscal from -0.2% last fiscal, and bank credit will grow at 12% compared with 8%. Private sector banks credit growth will be stronger, while public sector banks will also grow but take some time to catch up.
2. Resolution of large-ticket bad loans will have progressed further by end of this fiscal. Incremental NPAs will decline and mark the successful implementation of stressed assets recognition norms (ie early disclosure & provisioning for stressed bank loans).
3. Provisioning coverage of banks will rise. Deferred implementation of the final tranche of capital conservation buffer (CCB) by a year will provide some reprieve to PSBs. However, they will still need to raise Rs 85,000 crore as capital by the end of this fiscal mainly from the government.
◘ Successful resolution of (or traction in) large-ticket NPAs referred under the Insolvency and Bankruptcy Code (IBC)✔ framework
◘ Reserve Bank of India’s stringent stressed assets resolution norms✔
◘ Government’s mega recapitalisation plan for PSBs✔ and the recent (bold) steps towards consolidation of PSBs✔ are seen as strengthening the sector.
Banking sector in months ahead
CRISIL had predicted the reversal and improvement of credit offtake and asset quality. This is now happening. We foresee the following happening:
1. Return on assets for the whole system will be up at 0.1% in the current fiscal from -0.2% last fiscal, and bank credit will grow at 12% compared with 8%. Private sector banks credit growth will be stronger, while public sector banks will also grow but take some time to catch up.
2. Resolution of large-ticket bad loans will have progressed further by end of this fiscal. Incremental NPAs will decline and mark the successful implementation of stressed assets recognition norms (ie early disclosure & provisioning for stressed bank loans).
3. Provisioning coverage of banks will rise. Deferred implementation of the final tranche of capital conservation buffer (CCB) by a year will provide some reprieve to PSBs. However, they will still need to raise Rs 85,000 crore as capital by the end of this fiscal mainly from the government.
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