The rating agency expects gross NPAs in the banking system to peak at around 11.5 per cent of advances this fiscal and then start reducing. (Representational image)

Mumbai: As much as Rs 5 lakh crore of bank loans deteriorated into non-performing assets (NPAs) in fiscal 2018, taking the total slippages in the past three fiscals to Rs 13.6 lakh crore, rating agency Crisil said on Tuesday.

According to it, about a fifth of the slippages last fiscal was due to withdrawal of various structuring schemes by the Reserve Bank of India (RBI) in February 2018, after the Insolvency and Bankruptcy Code (IBC) process came into force.

As a result, gross NPAs increased to Rs 10.3 lakh crore, or 11.2 per cent of advances, as on March 31, 2018, compared with Rs 8 lakh crore, or 9.5 per cent of advances, as on March 31, 2017.

The rating agency expects gross NPAs in the banking system to peak at around 11.5 per cent of advances this fiscal and then start reducing.

Last fiscal, the banking system reported net loss of Rs 40,000 crore because of the sharp rise in NPAs and the resulting increase in provisioning costs.

PSBs bore the brunt of this with their provisioning costs nearly twice pre-provisioning operating profits, which resulted in a net loss of Rs 85,000 crore.

“Prospects of recovery from stressed accounts referred to the National Company Law Tribunal (NCLT) are improving. More than a quarter of the Rs 3.3 lakh crore worth of cases referred to NCLT for resolution are from the steel sector, which has seen heightened bidding interest due to improving prospects for the sector,” said Krishnan Sitaraman, senior director, Crisil.

While the banking system’s provisioning cover (excluding write-offs) for NPAs increased to 50 per cent as on March 31, 2018 compared with 45 per cent a year back, the rating agency noted that the higher provisioning and the resultant losses have materially eroded the Rs 1.2 lakh crore of capital raised by PSBs last fiscal.

It said that PSBs remain highly dependent on the government for capital to meet Basel III norms. Given the higher-than-expected losses last fiscal, probable loss in the current fiscal, and recall of the Additional Tier 1 instruments by a few PSBs, the Rs 2.1 lakh crore recapitalisation program announced in October 2017 may be insufficient to meet the capital requirements of PSBs by the end of this fiscal.