Bank non-performing assets likely to be at 4.4 per cent in FY14: Fitch

NDTV Profit:Press Trust of India | : May 10, 2013 00:07 (IST)

Mumbai: According to international rating agency Fitch, the asset quality woes of banks are unlikely to ease any time soon and the gross non-performing assets are set to inch up to 4.4 per cent this fiscal year from the likely reading of 4.2 per cent in 2012-13.

"Banks' latest results show a continued decline in the overall asset quality as the economic downturn persists...The central bank's recent rate cuts are unlikely to ease asset quality pressures to any great extent or help the banks correct their funding imbalances," the rating agency said in a note on Thursday.

It said infrastructure is the biggest risk for the banks during the fiscal year, which will see the gross bad assets ratio climbing up to 4.4 per cent from the 4.2 per cent estimated for FY13.

Some of the banks, including the largest lender SBI, are yet to announce their March quarter results, but the few public sector lenders which announced their earnings showed mixed bag on the asset quality front. However almost all the private sector lenders reported better quality in assets.

"The long-term nature of infrastructure assets leaves banks more exposed to asset/liability mismatches, particularly as deposit-gathering has not kept pace with credit growth," the report said.

Reliance on short-term funding like certificates of deposit and bulk deposits will remain high, Fitch note said, adding the larger banks with broader deposit and financing bases are better placed than the smaller ones in tackling the difficulties.

It said the growth in restructured loans will outpace those in NPAs, but added the pace of NPA accretion is slowing due to factors like policy easing by the Reserve Bank of India (RBI).

However, RBI's articulated concern on inflationary pressures and the twin deficit limits the scope for further easing from the 0.25 per cent cut in key rates delivered last week, it said.

Fitch, which along with its peer S&P had downgraded the rating outlook to negative last year, said, "key structural impediments" including availability of fuel, rising input costs and government clearances will be hard to tackle in the short-term.

However, if the recent measures of the government bear fruit, there is some cause for optimism in the medium-term, the report concluded.