See slowdown in addition of NPLs for banks in FY16: Moody‘s

The worst is over for the Indian banking sector is the word coming in from global rating agency Moody's Investor Service. The agency believes there will be a sharp slowdown in the addition of stressed assets in FY16, helped by an improvement in the macroeconomic environment. Prime Minister Narendra Modi's promise of "ache din" has long eluded the Indian banking system but this might not last much longer, if ratings agency Moody's is to be believed. The agency says that the alarming rise in bad loans and the slump in credit growth to multi-year lows may soon be a thing of the past. The pace of impaired loans will come down in FY16 and further in FY17. The source of the non-performing loan (NPL) problem is a legacy issue and not today's problem, so nothing new is coming up, and that we have a fair handle of unrecognised problems already.Some bankers agree with this prediction.Arun Tewari, CMD, Union Bank said: “Our stressed asset addition has been coming down since September 2014 and that trend will continue.”Moody’s expects the formation of fresh impaired loans to come down from the 3-4 percent levels seen in the last few years to 2 percent by March 2016 and even fall below 1.5 percent by 2017. This will be helped by the resolution of legacy issues in the economy.However, it warns that the steel and power sectors will continue to show signs of stress for some more time, making the banking sector's recovery a U-shaped one rather than a V-shaped one.