Credit rating agency Crisil has estimated that banks would need to take a 60 per cent haircut on the 50 top non-performing assets, based on their embedded value.
Haircut refers to a lender settling for less as repayment from the borrower than the original amount.
Krishnan Sitaraman, Senior Director, said, “That would mean banks will have to increase provisioning by another (about) 25 per cent this fiscal, compared with 9 per cent in the last.”
But the impact of that could be mitigated if banks are allowed to amortise the provisioning across six-eight quarters, he added. Referring to the 12 large NPAs in the banking system that were identified by the RBI for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC), the agency said time-bound resolution of these cases will indeed be a big positive for bank balance sheets.
Crisil said the internal advisory committee (IAC), set up by the RBI, has reviewed the top 500 exposures that are partly or wholly classified as NPAs, and given its recommendations.
“The IAC also recommended that for the other corporate NPAs, banks should finalise a resolution plan within six months and where a viable resolution plan is not agreed upon within that period, banks should initiate insolvency proceedings under the Code.
“With this step, the RBI has addressed the reluctance of banks to further mark down the asset values of these NPAs by having an oversight committee to provide guidance,” the agency said.