....The incentive for banks to be optimistic is understandable. Apply default rates to the total amount of corporate debt included in the CDR referrals, and gross NPAs of the banking system (currently 2.9 per cent) may go up by about Rs 70,000 crore. That would take the gross NPA ratio to total assets of the banking system to almost 8 per cent. Provisioning requirements and the impact on bank balance sheets could well blow a big hole in them.
Not everybody agrees, however. “Our banking system’s NPA ratios are much better than those in several developed economies,” says Deepak Singhal, Chief General Manager at the RBI’s Department of Banking Operations and Development. But he admits the new Basel III requirements could put a lot of stress on banks’ capital needs. “It could come from the government, capital markets and internal accruals, or a combination of all three.”...........
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