India Ratings and Research in its latest report has said it revised its outlook on the India's banking sector to negative for the second half of this fiscal (FY21) from stable. The agency said it has revised its outlook in view of an expected spike in stressed assets, higher credit costs, weaker earnings on account of interest reversals and lower fee income, and muted growth prospects in the wake of the measures taken to contain the spread of COVID-19. It expects restructuring/slippages pool from the corporate sector to be around Rs 3.3 lakh crore to Rs 6.3 lakh crore during the current fiscal.
It has revised the rating outlook on public sector banks (PSBs) to negative for the second half from stable, while maintaining a stable outlook for private banks, as they are better placed to withstand the challenges presented by the pandemic. It said state-run lenders' modest capital buffers are expected to deplete further in FY21 due to provisioning requirements. Also, pre-COVID profitability expectations for FY21 would be belied and most banks are likely to report net losses.
These banks may also need to continue to build up their provision cover in FY22 for restructured assets as some of the restructured assets could turn NPA in FY23. It mentioned PSBs' could require Rs 350 billion-Rs 550 billion in H2 of FY21 for tier 1 ratio of 10 per cent. Besides, it said the credit costs of banks are estimated to range between 2.6-3.4 per cent in FY21 (2.9-3.8 per cent for PSBs and 2-2.6 per cent for private banks), depending on the quantum of pool getting restructured or slipping to NPAs.