A day after rating agency Moody’s upgraded its rating on Indian banks to ‘stable’ from ‘negative’, another rating major Fitch on Tuesday said that the pressure on Indian banks non performing loans wou
A day after rating agency Moody’s upgraded its rating on Indian banks to ‘stable’ from ‘negative’, another rating major Fitch on Tuesday said that the pressure on Indian banks non performing loans would see a gradual reduction in coming months.
“Indian banks’ stressed assets are likely to have peaked this fiscal year, but the process of recovery is likely to be slow. A large stressed asset stock combined with structural challenges in key sectors will inhibit a quick resolution process despite a cyclical macroeconomic recovery.” It said. Fitch expects Indian banks’ stressed assets ratio to improve after reaching a high of 11.1 per cent in FY15 to around 10.9 per cent in FY16.
NPL formation should be held back by a pick-up in GDP growth, which according to the rating agency is expected to reach 7.8 per cent and eight per cent in FY16 and FY17, respectively. The RBI’s more accommodative monetary policy stance since January 2015 should help to boost credit demand and aid the recovery in banks’ asset quality.
However, Fitch added that the asset quality is likely to remain an issue for the sector for some time despite some evidence of ‘green shoots’. First, state banks are in a weak position, as they account for 90 per cent of stressed assets. State banks’ ability to withstand even moderate amounts of stress is low, while most face some degree of core capital impairment. Around 60 per cent of state bank NPLs have been overdue and are resorting to reducing their NPL stock. The agency expects this trend to continue.
