Bad debts will cause more pain for banks, says S&P
Rating agency expects Indian banks' credit costs to remain high because of under provisioning on their existing gross non-performing loans.
Mumbai: Global rating agency Standard & Poor’s said the asset quality and capitalisation of India’s banking sector is likely to remain under pressure in the next 12 months because of tepid domestic industrial activity, and subdued profitability and high leverage in some corporate sectors.
“We anticipate that the non-performing loan ratios of Indian banks with high exposure to troubled sectors will continue to rise, and credit costs of banks with a backlog of provisions will increase. These factors could strain the capitalisation of banks with below-average profitability, particularly as capital demands are likely to soar as Basel III norms get implemented,” said Amit Pandey, credit analyst at S&P.
The rating agency expects Indian banks’ credit costs to remain high because of under provisioning on their existing gross non-performing loans, weak corporate performance, continuing slippages of standard restructured loans into the nonperforming category, the central bank’s review of banks asset quality, and higher provisioning on strategic debt restructuring loans.
“We expect profitability of Indian banks to decline over the next two to three quarters because banks recently cut base lending rates, and their credit costs are likely to remain high,” said Mr Pandey.