The Reserve Bank of India’s decision to ask banks to keep higher provisioning for non-performing assets could lead to an additional provisioning of Rs 13,000 crore by banks till September end next year. The provisioning will increase to Rs 30,000 crore as non-performing assets (NPAs) are on the rise, a study has said. Rating agency Crisil’s Rs 13,000 crore provisioning estimate is based on the NPAs reported by banks as on March 31, 2009. NPAs were at 2.3 per cent of system advances, while the NPA coverage was around 55 per cent as on that date.

But, it said the banking system’s NPAs will increase despite significant restructuring undertaken by banks in the past six months. Due to extensive restructuring, banks’ NPAs are unlikely to increase to the extent that Crisil had previously expected them to. However, even if NPAs rise to 3 per cent by March 2010 — as against Crisil’s previous estimate of 3.9 per cent — the required additional provisioning will increase by Rs 20,000 crore. Therefore, the total provisioning requirement for the system will be Rs 30,000 crore to Rs 33,000 crore till end-September 2010.

In its review of the monetary policy, the RBI stipulated that banks should maintain a minimum provisioning coverage of 70 per cent on their NPAs by end-September 2010. “Indian banks’ loan loss cover has traditionally been lower than that of Asian peers. This is likely to lead to lower net income for most banks, but we do not envisage any capital hit,” Standard Chartered said in a report. Nomura in a research report estimated State Bank’s provision shortfall as a result of the rule change at Rs 2,890 crore and ICICI Bank’s at Rs 1,360 crore.

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