The RBI's move to ease the monetary policy and provide greater access to liquidity are credit positive as they support banks at a time of increasing loan quality and liquidity pressures, said Moody's.
The global credit rating agency observed that the recent 50 basis points cut in the policy repo rate will ease pressure on banks' loan quality, benefiting public sector banks the most.
Referring to the earlier phase of extended tightening trend, Moody's said it posed risks to the loan quality by pushing banks to increase lending rates, thereby moderating demand and impeding corporate borrowers' ability to repay their loans.
This effectively resulted in increasing non-performing loans (NPL) and restructured loans, which has culminated in an increased ratio of NPLs to total loans.
RESTRUCTURED PORTFOLIO
Moody's said the restructured portfolio of banks jumped from Rs 1,06,900 crore as on March-end 2011 to Rs 1,82,700 crore as on December-end 2011. The restructured loans to gross NPLs ratio jumped from 2.66 per cent as on March-end 2011 to 4.40 per cent as on December-end 2011.
The gross NPLs to gross loans ratio rose from 2.35 per cent as on March-end 2011 to 2.80 per cent as on December-end 2011.
Doubling the amount of liquidity available to banks at the central bank's discount window to 2 per cent of deposits will ease pressure on banks, which have had to pay higher rates to obtain liquidity. This indicates that the RBI is proactively supporting banks, said Moody's.
In the short term, this greater access to liquidity will help banks to steady their borrowing rates and interest margins.
Moody's said public sector banks, despite their higher proportion of NPL and restructured loans, do not face the liquidity pressures of private sector banks because of their strong deposit franchise.
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