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Public sector banks to see increase in bad loans: ICRA

Public sector banks to see increase in bad loans: ICRA

Apnaloan.com Research Bureau

10 Aug 2007

A report by the ratings firm ICRA revealed that public sector banks (PSBA's) may see a 4-5.5 per cent increase in their level of bad loans over the next three years from the 2.8 per cent at the end of March 2007. This has been accounted by the higher defaults in their retail and corporate portfolios.

In consequence, the banks may have to make 100 basis points higher incremental provisioning over the medium term to maintain their net non-performing assets (NPA) levels reasonably low.  
The report expects a default to be at around 2 to 3 per cent of advances, against 1.77 per cent at the end of 2006-07, resulting in the gross NPA level moving up to 4-5.5 per cent by March 2010.
Housing loans, which account for half of the retail advances, are likely to see higher defaults as public sector banks increased the equated monthly installments following a rise in interest rates.