Economic woes dent Indian banks' recovery prospects: S&P

Indo Asian News Service
August 7, 2013

New Delhi, Aug 7 (IANS) The Indian banking sector is unlikely to recover in the next 18-24 months due to negative macro-economic situation, especially sluggish growth and high deficit, according to global ratings agency Standard & Poor's.

In a report titled "Slack Economic Growth Dents Recovery Prospects For Indian Banks," S&P said slow economic growth is constraining the corporate sector, the chief recipient of banking credit.

"Deteriorating asset quality and earnings are likely to constrain the credit profiles of Indian banks over the next two years," Standard & Poor's credit analyst Geeta Chugh said in the report.

"We no longer expect the corporate sector to mildly recover in fiscal 2014, given slower-than-expected GDP growth, heightened currency volatility, and high interest rates," Chugh said.

According to the report, Indian banking sector's non-performing loan ratio is likely to jump to 3.9 percent of total loans in the financial year ending March 31, 2014 and to 4.4 percent in the next year as compare to 3.4 percent recorded in 2012-13.

The return on assets is also likely to remain depressed at about 0.9 percent.

Indian banks have restructured 5.7 percent of their aggregate loan balances as of March 31, 2013. The Reserve Bank of India allows banks to exclude these loans from their reported non-performing loans until fiscal 2014-15.

"We expect restructuring to remain high in the next two years because of the weak economy and the regulatory allowance," S&P said.

Standard & Poor's has revised downward its forecast for India's GDP growth to 5.5 percent for the current financial year from its earlier projection of six percent.