Slow progress of banks

India’s banking sector will recover only marginally over the next few quarters, according to a report, “Progress Will Be Slow For India’s Banks In 2017,” by #S&P Global Ratings.

“We expect the Indian banking industry’s growth and profitability to gradually improve in fiscal 2018 (the year beginning April 2017), from the low base of fiscal 2017,” said S&P Global Ratings credit analyst #Amit Pandey in the report published 28 Feb 2017.

“However, the improvement will be sluggish at best, given low capacity utilization in the corporate segment and the wait-and-watch approach of borrowers in some retail segments post demonetization.”

The past few years have been tough for India’s banking industry.

Anemic nominal GDP growth, a downcycle in the infrastructure and metal sectors, and demonetization resulted in the lowest loan growth in several years and high stress on profitability and asset quality.

S&P expect loan growth in India’s banking sector to recover in fiscal 2018.

A likely increase in nominal GDP growth and higher commodity prices will lead to greater working capital requirements for firms.

In addition, demand in the retail, small business, and agriculture segments will normalize gradually from the lows following demonetization.

Both these factors will support loan growth, it said.

“The pace of new nonperforming loan creation is likely to abate somewhat over the next 12 months,” said Pandey.

“But banks with sizable corporate exposures will remain vulnerable, given their low provision coverage and inadequate resolution of stressed assets.”

The moderation of credit costs could be visible at banks that make progress on resolution and recovery of stressed assets and can grow their loan books.

Weak profitability and rising capital demands from Basel III implementation will continue to pressure the capitalization of some public sector banks in India.

So far, these banks have been able to meet minimum regulatory requirements largely because of the government’s capital infusions, their issuance of Additional Tier 1 capital, and lower growth in risk-weighted assets.

However, barring further large capital infusions from the government, the credit profiles of some of the public sector banks will remain vulnerable, according to S&P. fii-news.com