Signaling that bad loans will continue to hurt Indian banks, credit rating agency, S&P Global ratings in its latest report has said that the credit profiles of banks are unlikely to improve over the next 12 months seeing that their total stressed assets are likely to increase to 15 percent of total loans by the end of March 2018. The agency further noted that the public sector banks will account for most of this weakness.
In its latest report titled 'No Quick Cure for India's Banking Blues', the rating agency has said that performance of public sector banks (PSUs) that it rated was dismal in the March quarter of the last fiscal, adding that year-over-year increase in non-performing loans (NPLs) led to higher provisions and lower profits. Besides, it said that the available pool of capital to absorb unexpected losses remained thin and loan growth was among the lowest in a decade.
S&P Ratings stated that PSU banks operate with a thin capital cushion and they will have to continue to rely on external capital infusion to meet the Basel III capital requirements, or sell off their non-core assets or investments. Besides, large haircuts on loans may require resolving stressed loans. The report further said that capital shortfall and asset quality problems could pave the way for consolidation among the government-owned banks and this consolidation needs to be accompanied by significant improvement in risk management practices, efficiency gains, capitalisation and improvement in overall governance.