Indian banks unlikely to recover in the next two years: S&P---- Source Livemint
S&P expects the Indian banking
sector’s bad loans to swell to
3.9% of total loans in fiscal year
2014
Mumbai: India’s banking sector is unlikely to recover in the next 18-24 months as the country’s sluggish economy has hit the growth of companies, Standard and Poor’s (S&P)said on Wednesday.
The rating agency cited high bad loans as another reason for the potential slow recovery of banks. “Deteriorating asset quality and earnings are likely to constrain the credit profiles of Indian banks over the next two years,” credit analyst Geeta Chugh said.
On 30 July, S&P revised India’s GDP (gross domestic product) forecast to 5.5% for fiscal year 2014 from its earlier estimate of 6.0%. India’s economy grew at 5%, the lowest in 10 years, in the fiscal year ended March. The government had been optimistic about boosting this 6.1-6.7% in the current fiscal but it’s not as optimistic now about a revival.
“We no longer expect the corporate sector to mildly recover in fiscal 2014, given slower-than-expected GDP growth, heightened currency volatility, and high interest rates,” Chugh said in a report, Slack Economic Growth Dents Recovery Prospects for Indian Banks.
The rating agency expects the Indian banking sector’s bad loans to swell to 3.9% of total loans in fiscal year 2014 and to 4.4% in the next, from 3.4% in the year ended March. “The return on assets of the sector should also remain depressed, at about 0.9%,” the report said.
Rising bad loans of Indian banks, especially state-run lenders, have been a major concern for policymakers in recent years as slower economic growth, high interest rates and project delays have impaired the ability of borrowers to repay loans.
According to a Mint analysis of the earnings of 35 listed banks that have so far reported their first-quarter earnings, gross non-performing assets (NPAs) of 22 public sector banks grew by 51% to Rs.1.2 trillion in the June quarter from the year-ago period. Compared with the March quarter, state-run bank gross NPAs rose by 15%.
Besides the rise in bad loans, a sharp surge in the level of restructured loans is also a worrying factor for Indian banks.
Banks have cumulatively restructured more than Rs.2.5 trillion of loans under the so-called corporate debt restructuring (CDR) mechanism. Under CDR, banks extend the repayment period for stressed borrowers, cut lending rates on such loans and offer a repayment holiday to facilitate repayment. A significant portion of the revamp is by public sector banks. The actual figure of restructured loans will be much higher because banks also enter into bilateral agreements with individual clients.
According to S&P, Indian banks had restructured 5.7% of their aggregate loan balances as of 31 March, the agency said. “We expect restructuring to remain high in the next two years because of the weak economy and the regulatory allowance,” it said. Stress in the banking sector is reflected in the share market. Bankex, the index of major banks on the BSE, has lost about 22% since January, while India’s benchmark equity index, Sensex, has lost about 4%.
Besides a slowing economy, recent liquidity tightening measures by the Reserve Bank of India (RBI) to shore up the weak rupee too will have an impact on the financial health of Indian companies and, in turn, their ability to repay loans to commercial banks, Crisil Ltd, the Indian subsidiary of S&P, had said in July. Firms will find it challenging to refinance one-third of their Rs.1.1 trillion debt maturing in 2013-14, given the tight systemic liquidity, Crisil said.
Clouds darken for banks as demand gives in--
Source: DNA
With economic growth expected to remain below 6% till at least the next financial year, the prospects of Indian banks appear to be dimming by the day. As credit demand weakens and borrowers’ repayment ability erodes, there is a huge question mark on how the lenders will fare going forward, say experts.
“Deteriorating asset quality and earnings are likely to constrain the credit profiles of Indian banks over the next two years,” Geeta Chugh, credit analyst at S&P, said in a note.
Going by her, the Indian banking system is unlikely to recover in the next 18-24 months.
The ratings agency expects banks’ asset quality to deteriorate further.
The banking industry’s non-performing assets ratio was at 3.4% last fiscal.
S&P sees this rising to 3.9% by the end of March 2014 and 4.4% by March 2015.
“The corporate sector’s weak performance, combined with high interest rates and a weak rupee, is likely to weaken debt servicing for these companies,” Chugh noted.
Banks, which restructured 5.7% of their aggregate loan base last fiscal, are expected to continue on the same path for the next two years because of a weak economy and regulatory stance.
“The return on assets should also remain depressed, at about 0.9%,” the S&P report stated.
The ratings agency, which has lowered the growth estimate for India’s gross domestic product to 5.5% from 6% for this fiscal, sees bank credit growth coming under pressure, too.
And it’s not alone.
Morgan Stanley expects credit growth to fall to around 10% for the current as well as next fiscal. While capex and infrastructure related loan demand would continue to suffer, growth in loans to small and medium enterprises, too, will fall.
“Consumer loan growth is likely to stay strong in mid-teens in the current fiscal. However, if economic growth does not pick up, we could start seeing a slowdown in this segment too by F2015 – at some point in time, the economic slowdown has to hurt consumer sentiment too,” Anil Agarwal, Sumeet Kariwala and Subramanian Iyer, analysts at Morgan Stanley, said in a note.
As per the latest data, bank credit grew at 14.9% and deposit growth at 13.4% as on July 26. The Reserve Bank of India has projected a credit growth of 15% and deposit growth of 14% by the end of this fiscal.
“Deteriorating asset quality and earnings are likely to constrain the credit profiles of Indian banks over the next two years,” Geeta Chugh, credit analyst at S&P, said in a note.
Going by her, the Indian banking system is unlikely to recover in the next 18-24 months.
The ratings agency expects banks’ asset quality to deteriorate further.
The banking industry’s non-performing assets ratio was at 3.4% last fiscal.
S&P sees this rising to 3.9% by the end of March 2014 and 4.4% by March 2015.
“The corporate sector’s weak performance, combined with high interest rates and a weak rupee, is likely to weaken debt servicing for these companies,” Chugh noted.
Banks, which restructured 5.7% of their aggregate loan base last fiscal, are expected to continue on the same path for the next two years because of a weak economy and regulatory stance.
“The return on assets should also remain depressed, at about 0.9%,” the S&P report stated.
The ratings agency, which has lowered the growth estimate for India’s gross domestic product to 5.5% from 6% for this fiscal, sees bank credit growth coming under pressure, too.
And it’s not alone.
Morgan Stanley expects credit growth to fall to around 10% for the current as well as next fiscal. While capex and infrastructure related loan demand would continue to suffer, growth in loans to small and medium enterprises, too, will fall.
“Consumer loan growth is likely to stay strong in mid-teens in the current fiscal. However, if economic growth does not pick up, we could start seeing a slowdown in this segment too by F2015 – at some point in time, the economic slowdown has to hurt consumer sentiment too,” Anil Agarwal, Sumeet Kariwala and Subramanian Iyer, analysts at Morgan Stanley, said in a note.
As per the latest data, bank credit grew at 14.9% and deposit growth at 13.4% as on July 26. The Reserve Bank of India has projected a credit growth of 15% and deposit growth of 14% by the end of this fiscal.
Prospects of recovery weak, says S&P--Business Line
MUMBAI, AUG 7:
The Indian banking sector is unlikely to recover in the next 18-24 months due to slower growth constraining the corporate sector, according Standard & Poor's Ratings Services report.
In its report ‘Slack Economic Growth Dents Recovery Prospects For Indian Banks’, S&P said, “We base our view on slow economic growth that is constraining the corporate sector, the chief recipient of banking credit.”
According to Geeta Chugh, credit analyst, S&P, "Deteriorating asset quality and earnings are likely to constrain the credit profiles of Indian banks over the next two years. We no longer expect the corporate sector to mildly recover in fiscal 2014, given slower-than-expected GDP growth, heightened currency volatility, and high interest rates."
The report expects restructuring to remain high in the next two years because of the weak economy and the regulatory allowance.
Indian banks have restructured 5.7 per cent of their aggregate loan balances as of March 31, 2013.The Reserve Bank of India allows banks to exclude these loans from their reported non-performing assets until fiscal 2015.
It expects the banking sector's NPA ratio to surge to 3.9 per cent of total loans in fiscal 2014 (ending March 31, 2014) and to 4.4 per cent in fiscal 2015 compared with 3.4 per cent in fiscal 2013.
Lowers GDP growth forecast
S&P also revised its GDP growth forecast for India at 5.5 per cent from 6 per cent for fiscal 2014.
"The corporate sector's weak performance, combined with high interest rates and a weak rupee, is likely to weaken debt servicing for these companies," said S&P’s another analyst Mehul Sukkawala.
We believe that the infrastructure (power and road), metals and mining, construction, and capital goods sectors are particularly at risk, he said.
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