Stressed assets of Indian banks peak

Stressed assets of Indian banks’ are likely to have peaked this fiscal year, but the process of recovery is likely to be slow, according to Fitch Ratings’ special report ‘Indian Banks’ Asset Quality.’

Fitch expects Indian banks’ stressed assets ratio to improve after reaching a high of 11.1 per cent in FY15, but only marginally to around 10.9 per cent in FY16.

Non performing loans (NPL) formation should be held back by a pick-up in GDP growth, which we forecast to reach 7.8 per cent and eight per cent in FY16 and FY17, respectively.

The RBI’s more accommodative monetary policy stance since January 2015, should also help boost credit demand and aid the recovery in banks’ asset quality.

According to Fitch, specific sectors are likely to witness more asset quality pressures.

“Some sectors remain high-risk, saddled with high corporate leverage and weak debt-servicing ability, despite the improving macroeconomic environment. The infrastructure and steel sectors could yet see greater asset-quality stress if structural and policy-related issues are not addressed more urgently,” Fitch said. Infrastructure and steel together account for 20 per cent of the total system loans, and are reported to account for up to 40 per cent of the stressed assets, the Fitch report says.

Fitch goes on to state that clearance of stalled projects is certainly likely to improve asset quality of banks. “Clearing stalled projects would have a significant positive effect for the infrastructure sector and in turn, on bank asset quality.”