MUMBAI: NPA in the banking system may have peaked.

The addition of fresh NPAs to the system this fiscal is expected to be 3% of the total banking sector advances, down from 7.3% in the year ago period, due to declining special mention accounts (SMA) and standard restructured advances, ratings agency ICRA said. The Gurugram-based company also said that 17 to 18 PSU banks may report a loss during this fiscal, as against 19 during FY2017-18, due to higher provision requirement after resolution of stressed assets. Based on data compiled for 21 public sector banks and 17 private sector banks, the fresh slippages during the quarter ended June ’18 stood at Rs 92,000 crore, an annualised rate of 4.7%, which is higher than ICRA’s prediction.

However, the agency said that it expects the rates to moderate further in the coming quarters. The forecast is based on the reducing percentage of SMA-2 accounts and standard restructured advances in the system, said Anil Gupta, Vice President and Sector Head of Financial Sector Ratings at ICRA.

“The share of SMA-2 loans have reduced to 1% as of March 2018 from as has 2% in September 2017 and 4% in December 2016.” SMA-1 and SMA-2 accounts are the ones where the interest remains unpaid for 31 to 60 and 61 to 90 days, respectively, post which they get labelled as non-performing assets (NPA). Meanwhile, standard restructured advances, or loans that replace the outstanding balance on an old loan with a reworked repayment agreement, stood at 0.55%, down from 1.1% in March 2018. The ratings agency also pointed that the June quarter was the first instance in 18 quarters when the gross NPA in the system saw a downward trend.

“The gross NPAs declined to Rs 10 lakh crores as of June 30th, 2018 or 11.5% as compared to Rs 10.23 lakh crores or 11.68 % as of March 2018,” the senior executive said. As ET reported earlier, banks made record recoveries and upgradation during the June quarter due to resolution through NCLT.

ICRA said that the trend will continue this quarter, especially with the imminent resolution of the two large accounts of Bhushan Power and Steel and Essar Steel.

However, they warned that the haircuts on these accounts could be higher than the provisions made by the banks. ICRA said that under these circumstances, up to 18 PSBs may report losses this year.

The loss estimates ranged from an optimistic Rs 42,000 crore to as high as 1 lakh crore under the worst-case scenario, Gupta said.

In case of higher losses, the government might have to increase the capital allocation to bail the banks out.

PSBs have already reported a combined loss of Rs 24,000 crore during the June quarter. Meanwhile, the agency expected the profitability of private banks to improve.