Stressed assets in Indian banks likely to increase: India Ratings-Livemint-31.01.2014
Stressed loans are likely to rise to 14% of total loans by March 2015 from 9% in March 2013, says India Ratings
Mumbai: Stressed assets of Indian banks, including both bad and restructured loans, are likely to increase to 14% of total loans by March 2015 from 9% in March 2013, a new report by India Ratings and Research Pvt. Ltd, an arm of global credit rating agency Fitch Ratings Ltd, said on Thursday.
However, the pace of accretion in non-performing loans (NPLs) is likely to ease in the second half of fiscal 2015 because of a rebound in economic growth and improved loan recoveries, India Ratings said.
“The premise may have to be reversed if growth remains elusive and volatility in the currency market forces a continuation of tight monetary conditions. High corporate leverage indicates a limited capacity to absorb further pressures on costs and banks could face a fresh wave of NPLs if corporate profitability continues to fall,” India Ratings said in a research note.
“High corporate leverage indicates a limited capacity to absorb further pressures on costs and banks could face a fresh wave of NPLs if corporate profitability continues to fall,” India Ratings said.
A slump in economic growth to 5% in the last fiscal year, the slowest pace in a decade, high borrowing costs in the face of persistent inflation and delayed project approvals that constrained corporate cash flows have made it tough for many borrowers to service debt, leading to a pile-up of bad loans in recent months.
Restructuring of infrastructure sector loans is likely to continue due to persistent delays in execution of projects and rising costs. About 20% of infrastructure loans were restructured till end-March 2013, but this proportion could rise to 30% to 40% over the next two years, according to India Ratings.
“Credit losses are, however, expected to be contained as the long-term viability of most projects remains intact given the nationwide shortages of power, roads and quality urban infrastructure,” the rating agency said.
India Ratings expects India’s economic growth to rebound to 5.6% in fiscal 2015 driven by an investment revival coupled with stronger performance from exports.
“Stable or marginally lower interest rates are expected to prevail, which should help improve corporate margins and interest coverage measures, which are currently at a five year low,” the agency said.
Reserve Bank of India on Tuesday hiked its benchmark repo rate by 25 basis points citing higher consumer prices but it also indicated that further rate hikes are unlikely if consumer prices do not rise from the current levels. One basis point is 0.01 percentage point.
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