Banking

India’s Banks May Need At Least $2.8 Billion Extra Provisioning for Bankruptcy Cases

The extra provisioning needed would reduce the profits of creditor banks by about a quarter in the financial year to March 2018, according to India Ratings.

A cashier displays the new 2000 Indian rupee banknotes inside a bank in Jammu, November 15, 2016. Credit: Reuters/Mukesh Gupta

A cashier displays the new 2000 Indian rupee banknotes inside a bank in Jammu, November 15, 2016. Credit: Reuters/Mukesh Gupta

Mumbai: Indian banks taking 12 of the country’s largest defaulters to bankruptcy court under a central bank directive, will need to make additional provisioning of at least Rs 180 billion, India Ratings and Research said on Tuesday.

India Ratings, an affiliate of Fitch Ratings, estimated the current average provisioning towards those 12 accounts at 42%, adding the extra provisioning needed would reduce the profits of creditor banks by about a quarter in the financial year to March 2018.

The Reserve Bank of India last month asked creditor banks to begin insolvency proceedings against 12 of the country’s biggest loan defaulters, and subsequently mandated that the banks would need to make provision for up to 50% of the amount of soured loans.

The 12 companies account for Rs 1.78 trillion rupees in non-performing bank loans, according to RBI data.

Banks had total non-performing loans of about Rs 7.29 trillion, or 5% of the gross domestic product, as of end-March.