Indian banks' poor performance to persist in fiscal 2018: S&P

SINGAPORE - Indian banks' credit profiles are unlikely to improve over the next 12 months, according to S&P Global Ratings. "We estimate that the banking sector's total stressed assets will increase to 13%-15% of total loans by the end of March 2018," says S&P Global Ratings credit analyst Deepali Seth Chhabria. "India's public sector banks, which dominate the industry, will account for most of this weakness.

“The performance of the Indian public sector banks that we rate was dismal in the fourth quarter of fiscal 2017 (to March 31, 2017)- but also in line with our expectations.

“Year-over-year increase in nonperforming loans (NPLs) led to higher provisions and lower profits, and the capital available to absorb unexpected losses remained thin. In addition, loan growth was among the lowest in a decade,” she says.

"India's public sector banks will have to continue to rely on external capital infusion to meet the Basel III capital requirements, or sell off their non-core assets or investments."

“These public sector banks already operate with a thin capital cushion. In addition, they may be required to make large "haircuts" on loans to unviable stressed projects, the regulatory capital requirement will continue to rise till 2019, and profitability will remain subdued.”

The Indian Government has promised to infuse Indian rupee (INR) 700 billion into its public sector banks over 2016-2019, with INR100 billion allocated for fiscals 2018 and 2019 each.
 
“In our view, these amounts won't be sufficient to fully resolve the public
sector banks' looming capital shortfall,” S&P says.  www.standardandpoors.com (ATI).