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  3. India Ratings maintain stable outlook for large public sector, private sector banks

India Ratings maintain stable outlook for large public sector, private sector banks

16 Feb 2017 Evaluate

Credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has maintained stable outlook on large public sector banks and private sector banks supported by high levels of capital. On the same time it retained its negative outlook on mid-sized and smaller state-run banks due to limited access to capital and large non-performing assets.

Ind-Ra in its report ‘Indian Banks Outlook for FY18’ said that there is an increasing divide between the large and smaller PSBs, with the former having some access to growth capital, better market valuation, and also some non-core assets to divest while the latter would only receive bailout capital if required and would need to ration their capital consumption over next two years.

It said that while the large public sector banks with better access to capital and private sector banks with their robust capitalisation will navigate another year of low growth and high credit costs with a stable outlook, mid-sized and smaller state-run banks will find it increasingly difficult to grow given increasing capital requirements and large funding gaps impeding their ability to compete on spreads.

The rating agency however said that long term ratings of all public sector banks remain resilient on expectations of continued government support. The report also said that Indian banks will need Rs 91,000 crore in Tier-I capital until March 2019 to grow at a bare minimum pace of 8 to 9 per cent compound annual growth rate (CAGR)  ) including a residual Rs 20,000 crore from the government’s bank recapitalisation programme 'Indradhanush'. Impaired assets in the banking sector are expected to peak at 12.5 per cent to 13 per cent by the financial year 2017-18 and 2018-19, which is likely to be at 12% by the end of financial year 2016-17. The rating agency also maintained a stable outlook on the non-bank finance company (NBFC) sector and on the major NBFCs rated by it for the financial year 2017-18.

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