Recovery for India's banks still a way off: S&P

SINGAPORE - Revival in private sector investments and credit growth, and a reversal in the trend of rising nonperforming loan ratios for India's banks is likely to take time, despite improving operating conditions for banks, because of a reform-minded Government and increased elbow room for the central bank to lower interest rates, says Standard & Poor's.

"We expect the pace of growth of stressed assets to fall because a substantial part of the stress has already been recognised," said S&P credit analyst, Amit Pandey.

"Any material recovery of corporate loan quality will require improvement in demand in India, deleveraging of corporate balance sheets, and resolution of problems in the infrastructure and metal and mining
sectors, all of which will take a while," he says.

Capitalisation is a key constraint for some public sector banks in India, the report notes. “We believe that rated private sector banks are better placed than their public sector peers to meet Basel III capital requirements. The recent budget allocates only Rs79.4 billion for infusion into banks in fiscal 2016 (year ending March 31, 2016). Public sector banks will therefore have to raise additional capital through additional Tier 1 hybrid instruments, equity markets, and State-owned Life Insurance Corp.”

Standard & Poor's estimates that credit growth in India's banking sector will improve to 12%-13% in fiscal 2016 (year ending March 31, 2016) from less than 10% in the second half of calendar year 2014. www.standardandpoors.com (ATI).