Visible pressure on banks' loan quality, says Crisil

BL :MUMBAI, APRIL 3,2012

Yet, rating agency maintains stable outlook on Indian banks

The asset quality of Indian banks will remain under pressure, according to credit rating agency CRISIL.

The agency expects banks' Gross Non Performing Assets (NPAs) to rise to around 3 per cent by March-end 2012 and 3.2 per cent by March-end 2013.

Banks' gross NPAs increased from 2.3 per cent of advances to 2.9 per cent between March 31 and December 31, 2011.

Specifically, the pressures on asset quality are visible in the steadily rising trend in the gross NPAs of public sector banks (PSBs), said CRISIL in its credit quality outlook for the near to medium term.

The agency said the high slippages in the last few quarters have been largely on account of high interest rates, rise in delinquencies in the agriculture and small and medium enterprises segments, and the migration to system-based NPA recognition. The stress on banks' corporate portfolios is also reflected in the increasing incidence of restructuring of relatively large exposures in sectors such as power and aviation, said the agency.

STABLE OUTLOOK

Crisil expects such trends (build-up in stress and more restructuring) to continue through a large part of 2012-13, with persisting concerns on growth, policy issues and high interest rates.

According to Mr Somasekhar Vemuri, Director, CRISIL Ratings, about 15-20 per cent of the assets restructured after the 2008-09 global economic crisis have become non-performing for banks.

Despite continued asset quality pressures, the agency has maintained a stable outlook on rated Indian banks.

This is due to the availability of strong support from the government for the PSBs, their adequate capital position, and stable resource profiles. The agency expects retail non-banking finance companies to maintain healthy growth in business volumes in 2012-13.

NBFCS

However, the strong growth witnessed in 2011-12 is likely to moderate in 2012-13.

Newer asset classes, increasing penetration in semi-urban and rural areas, and substitution of the unorganised sector continue to drive growth for the retail NBFC sector.

The asset quality and profitability levels of NBFCs may be subject to some pressure, given the weakness in the economy and high interest rates.

For capital market players, CRISIL expects the operating environment to remain challenging with severe pressures on the equity broking and investment banking businesses.

It observes that many of these players have been gradually diversifying into retail finance to address these challenges.