Asset quality indicators for Indian banks continue to deteriorate: Fitch

Mumbai: Asset quality indicators for the domestic banks continue to deteriorate, and stressed assets are likely to peak around 15 percent due to further weakening of the economic environment, a Fitch Ratings report said.

“The asset quality indicators for Indian banks continue to deteriorate and will likely reach levels much worse than previously expected due to further weakening in the economic environment,” it said.

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“We expect the proportion of stressed assets to peak at around 15 percent.”

Stressed assets of domestic banks were at 9.1 percent of total loans (which includes non-performing loans of 3.4 percent and restructured loan ratio of 5.7 percent) in FY'13 from 6.1 percent in FY'12.

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Ratio of stressed assets rose to around 10 percent in the first quarter of this fiscal.

Earlier, the rating agency had said it expects the bad loans of banking sector to peak by FY'16.

The rating agency also noted that the stress tolerance has weakened, resulting in downgrade of viability rating (VR) at several state-owned banks recently.

With regard to private sector banks, it said they have superior credit profile supported by their robust earnings profile, lower stressed assets and strong capital position.

While the state-owned banks whose earnings and capital buffers have not kept pace with the significant asset quality deterioration are likely to face more pressure on their VRs, private sector banks are better positioned to face the economic slowdown.

In terms of emanating points of stressed assets, the rating agency said sectors like power, steel and construction are stretched and are likely to contribute the bulk of the expected stress.

As per the report, state-owned banks may not seek funding through equity market route in the near to medium-term due to their weak performance, adding to the dependence on the government for capital infusion.

It, however, said, “Funding for Indian banks is generally satisfactory though liquidity is expected to remain tight in the near-term.”

PTI