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The balance sheets of public sector banks (PSBs) in India have improved and bad debt formation is expected to moderate in the future, according to a Morgan Stanley report.
According to the report, the level 1 common equity (CET 1) for state-run banks (excluding State Bank of India) under its coverage is now 9.6% compared to 9.1% in the F20 and 6.8% in the F18.
“In recent years, public banks have seen a large injection of capital from the government, lower RWA (risk-weighted assets) density, higher provisioning and large recoveries. The GNPL coverage ratio for the public banks (excluding SBI) under our coverage improved to 67 percent and to 55 percent on all impaired loans, ”he said.
Noting that underwriting practices remain weak in state-run banks, he said the formation of bad loans in the retail, agribusiness and MSME segments at these banks other than SBI has increased in recent years.
These segments have been a key driver of growth in most PSBs and represent 50-60% of loan portfolios.
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Posted on: Friday Mar 05, 2021 08:16 IST
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