Return
to Story Page
To print: Select File and then Print from your
browser's menu
ENS ECONOMIC BUREAU
MUMBAI, DEC 8: International credit rating agency Standard & Poor's (S&P) has assigned BB ratings to Bank of India, Canara Bank, Union Bank of India and Central Bank of India. However, S&P has cautioned the banking industry saying that the asset quality of banks is poor.
All the four banks will be challenged to maintain profitability and asset quality at current levels, given a weaker economic environment and the implementation of more stringent prudential standards, an S&P release said on Tuesday.
"Rising impaired loans, a weak industrial sector and an economy that is less robust than in the past, could be problematic for the industry in the near term. These pressures are expected to have a negative impact on the profitability and internal capital-generating capacity of all Indian financial intermediaries, at a time when the Reserve bank of India has announced that it will progressively strengthen capital requirements and asset classification and provisioning standards, in the next two years," saidS&P.
Implementation of these guidelines may necessitate additional capital infusions by government or possibly a reassessment of the government required minimum shareholding of 51 per cent in the state-owned banks that dominate the sector.
The ratings on all the four state-run banks are supported by their sound market positions as key depository institutions, with each bank enjoying a strong funding base. Creditworthness is also supported by majority government ownership and the significant role the banks play in fulfilling social policy objectives.
These strengths are, however, moderated by asset quality that is poor by international standards, weak underlying profitability and the challenging and somewhat volatile and deregulating operating environment.
Central Bank's capital base is impaired by accumulated losses that are carried on-balance sheet. Accordingly, the bank has relatively less financial flexibility than other banks in the same category.
S&P has noted that the Indian financial sectorhas progressively reformed since 1991 and while the risk profile of the industry has improved significantly following the introduction of tighter prudential controls on asset classification, provisioning and capitalisation, the sector remains highly regulated and relatively inefficient by international standards.
The almost complete deregulation of interest rates and the dismantling of the standardised bank lending guidelines have introduced a range of new risks and challenges and have necessitated the development of improved credit disciplines and more sophisticated techniques for the management of liquidity and interest rate risks. These are areas that have previously received little management attention.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------