Moody’s Investors Service on Monday issued a “stable” outlook for India’s banking sector for the next 12 to 18 months, saying it was moving beyond the worst of its bad loans phase, Reuters reported. However, the ratings agency said that capital levels in state-run banks remained a key weakness for the government-owned entities.
In a report, Moody’s said that while the number of “impaired loans may still increase” in this period, the rate at which they were growing will be lower than what it was in recent years. The agency further said the Indian government’s pledge to provide state-run banks with Rs 70,000 crore by March 2019 is less than its estimated requirement of Rs 1.2 lakh crore.
“A potential way to bridge this capital shortfall would be to slow loan growth to the low single digits over the next three years,” the report said. It added that the state-run entities will require the capital with “limited access” to capital markets, while private banks will “benefit from solid capitalisation and good profitability”, The Hindu Business Line reported.
Indian banks have disclosed that there has been a 96% spike in non-performing assets to Rs 6,29,774 crore in June 2016 from Rs 3,20,553 crore during the same month last year. The percentage of gross bad loans out of the total loans of Indian banks has doubled to 8.7% in June from 4.6% in March last year. The data was made available after the Reserve Bank of India ordered an asset quality review.
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