According to rating agency Standard & Poor’s (S&P), asset quality of Indian banks may remain weak in 2013-14 and improve only in 2014-15.
In a recent report, the agency said the quality of earnings would be stressed and bad loans may rise to 4.4 percent before falling.
Therefore, S&P sees 2013-14 to be a challenging year for the banking sector. RoAs are expected to improve by 1 percent after 2015.
The scenario should make new entrants into the sector cautious and prudent. The strict guidelines released by Reserve Bank of India (RBI) may also prevent players from foraying into the banking sector, reports indicate.
According to the RBI guidelines, potential bankers must open at least a quarter of their branches in unbanked rural areas. They are also expected to have large capital bases. Such tough conditions can force the new banks to have top-notch processes and systems. They would also be forced to be innovative in their approach and products.
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