According to credit rating agency – Standard & Poor’s, despite intense competition and high inflationary pressures, India's banking sector will continue to show high growth owing to the country's strong economic expansion. They expect credit growth of about 20 per cent in the next fiscal year.
The ratings agency said that India's banking sector had weathered the global financial slowdown on the back of a robust economy, a stable retail deposit base and a prudent regulatory environment. However, S&P said that the asset quality of the Indian banking sector came under some pressure in the fiscal year ended March 31, 2010.
The increase in NPLs was contained by the quick economic recovery, modest leverage and low sectoral concentration in the banks' loan books. Besides this, the banks had low exposure to sensitive sectors.
The NLPs were also reined in because of the one-time dispensation by the Reserve Bank to restructure loans without classifying them as NPLs (on meeting certain criteria), it added.
"Slippages (loans moving to NPL) from restructured loans were 5-20 per cent in the six months following the completion of the restructuring exercise in June 2009," S&P said.
However, looking ahead, it forecast: "We expect 25-50 per cent of the restructured loans to slip to NPL in the next two years."
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