The asset quality of the banks are set to improve in view of the sound performance of the economy, easing of the earnings pressure as banks regained pricing power due to high demand for credit, global rating agency Standard & Poor's said in a report on Monday.
"We expect the asset quality of banking sector to improve in view of the economy's sound performance. The banks could also benefit from the limited loan concentration and India's lower leverage than other Asian countries' in terms of a ratio of overall credit to GDP," Standard & Poor's credit analyst Geeta Chugh said in the report titled 'Industry report card: Indian banks are likely to ride an economic growth wave.'
The report further notes that earnings pressure on banks eased in the last fiscal, as banks regained pricing power due to high demand for credit.
The report specifically notes that the introduction of the base rate also boosted profitability of banks. Another reason for its optimistic outlook is the banks' decision to delay the repricing of liabilities amid rising interest rates.
However, the report warns of the rising inflation, competition and evolving risk management practices which could hinder growth of the domestic banks. But it takes umbrage that the sound growth of the economy, favourable demographics, and under-penetration are likely to benefit banks in the long-run, due to the limited loan concentration.
The report also warns that the surge in real estate prices in some pockets poses a credit risk to banks.
"We expect the non-performing loan ratio to start declining in fiscal 2012, later than for banks in other regions. This is because the central bank allowed banks to restructure loans at the peak of the financial crisis without classifying them as non-performing," notes Chugh. The average NPA ratio stood at 2.6 percent in last fiscal.
+1.jpg)
0 comments
Post a Comment