‘Banking sector revival at least a year away’

The banking sector is expected to remain under stress for at least one more year even as the corporate performance may start picking up in the next six months said a S&P ratings services report. The report said that non-performing assets may hit 4.4 per cent of the gross loans by March 2014 up from 3.9 per cent expected in March 2013.

"We have a negative outlook on all the banks that we rate in India. This reflects the negative outlook on the sovereign rating," said the report titled 'More pain but relief might be on the way'.

"We believe deteriorating asset quality and earnings could continue to constrain credit profiles of Indian banks over the next year."

The report which projects the economic growth to rise from expected 5.5 per cent in FY'13 to 6.4 per cent in FY'14 and then to 7.2 per cent in FY'15, states that the non performing assets banks may continue to rise for now.

It said that the gross non-performing loan ratio to go up from expected 3.9 per cent in March 2013 to 4.4 per cent in March 2014. Even the return on assets for banks are expected to remain at 0.9 per cent in FY'14 before hitting 1 per cent in FY'15.

The report also highlighted the need for capital by Indian banks to meet the Basel III norms. It estimates that the Indian banking system will have a shortfall in capital of $3-4 billion if it was to attain 8 per cent common equity Tier 1 ratio to comply with Basel III guidelines.

"The capital shortfall will keep rising because of growth and Basel III requirements," said Geeta Chugh of S&P.

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