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S&P expects banks’ performance to be under stress

S&P expects banks’ performance to be under stress

A report from Standard & PoorÂ’s (S&P) warned that the declining asset quality of banks in India would affect their performance adversely.

Recently, the global credit rating agency released the report titled “Slack Economic Growth Dents Recovery Prospects for Indian Bank.”

In the next 18-24 months, the Indian banking sector may not recover because of sluggish economic activity and weak corporate earnings, the report says.

The agency revised IndiaÂ’s GDP forecast to 5.5 percent from the earlier 6 percent.

S&P arrived at this view on the backdrop of slow economic growth that is constraining the corporate sector, the chief recipient of banking credit.

In fiscal 2014, the agency does not expect the corporate sector to recover mildly because of muted GDP growth, heightened currency volatility, and high interest rates.

The report expects the banking sectorÂ’s non-performing loan (NPL) ratio to surge to 3.9 percent of total loans in fiscal 2014 and to a much higher 4.4 percent in fiscal 2015, compared with 3.4 percent in fiscal 2013. The return on assets should also remain depressed, at about 0.9 percent, the report says.

Indian banks, S&P points out, have restructured 5.7 percent of their aggregate loan balances as of March 31, 2013.

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