Credit rating agency, S&P ratings in its latest report has said that India’s banking sector growth and profitability are expected to improve gradually in financial year 2017-18, from the low base of the financial year 2016-17. The agency has noted sluggish recovery in industry because of low capacity utilisation in the corporate segment and the wait-and-watch approach of borrowers in some retail segments post demonetisation.
The rating agency, in its report 'Progress will be Slow for India's Banks in 2017', has said that the pace of new non-performing loan creation is likely to abate somewhat over next 12 months and due to low provision coverage and inadequate resolution of stressed assets, the banks with sizable corporate exposures will remain vulnerable.
Further S&P noted that weak profitability and rising capital demands from basel III implementation will continue to put pressure on the capitalisation of some public sector banks (PSU) in the country. It said that barring large capital infusion from the government, credit profiles of some of the PSU banks would remain vulnerable.
On loan growth, the rating agency has said that the note ban resulted in the lowest loan growth in several years and high stress on profitability and asset quality. However, it expect recovery in loan growth in the financial year 2017-18. The agency added that a likely increase in nominal GDP growth and higher commodity prices will lead to greater working capital requirements for firms.