Press release from Business Wire India
Source: Brickwork Ratings
Wednesday, November 16, 2011 04:30 PM IST (11:00 AM GMT)
Editors: General: Consumer interest; Business: Banking & financial services, Business services, Financial Analyst
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Brickwork Ratings reaffirms "Stable" Outlook for the Indian Banking Sector
Bangalore, Karnataka, India, Wednesday, November 16, 2011 -- (Business Wire India) -- Brickwork Ratings maintains a "Stable" outlook for the Indian banking sector in the coming six to twelve months. This outlook is based on a rational view of past performance of the banking industry, positives and challenges faced by banks, the regulatory environment and implications of Euro Zone crisis and other events in the world economy.
Brickwork has rated 14 public and private banks that account for around 55% of the total business in the Indian banking sector. Brickwork-rated banks have reported an average return on assets (RoA) of 1.05%, gross NPA of 2%, provision coverage ratio of 77%, net NPA of 0.80% and Leverage of 17.32. The ratios of Brickwork rated banks are reproduced in the Annexure.
Brickwork's analysis shows that the Indian banking sector has several challenges to overcome in the coming year.
-- First, the Indian economy is overheated with inflation continuing near double digits. The uncertainty in the Euro Zone has resulted in a weaker Indian rupee at Rs 50.7 per dollar, adding fuel to the inflation fire. While RBI signaled a pause in monetary tightening, its action might depend on future inflation numbers.
-- Second, high interest rates have affected corporates. Non-performing assets are going up. Banks have lent over Rs 5.6 lakh crores to the infrastructure sector. While the power sector, which accounts over 50% of gross lending to infrastructure, has been facing problems like break up in fuel linkages, dilution of open access provisions in the Electricity Act and overall deteriorating finances of electricity distribution companies. The senior management of banks will have to spend considerable time monitoring and discussing repayments with restructured accounts.
-- Third, the State governments which were buoyant in 2003-08 are now under stress, with revenue deficits creeping up and their ability to support loss making electricity units getting constrained.
-- Fourth, increasing oil prices have put the government-run oil companies under pressure. With increasing fiscal deficit the government is now left grappling with the challenge of supporting the oil PSUs.
However, Brickwork also notes several positives in the Indian Banking sector:
-- First, unlike developed economies the Indian economy is dynamic and its GDP is expected to grow 7.7% coming fiscal. While GDP growth might have slowed compared to 8% plus projections, India's growth is far higher compared to world standards at the moment.
-- Second, the Indian government, regulators and bank management have learnt from the experience of over two decades, when NPA were brought down from 20% to 2%. Indian regulation at the times of world financial crisis has been applauded all over the world.
-- Third, the NPAs are going up at present, both due to slippages as well as new system based recognition rules. Due to new system recognition rules the NPAs are now being reported and their economic effect was already incorporated in banks' results. Average provision coverage ratio of Indian banks has also been comfortable with most of the banks at above 70%.
-- Fourth, Indian banks have been operating at Leverage of about 17. Brickwork's definition of Leverage captures both on balance sheet and off balance sheet assets. Foreign banks have substantial derivatives off balance sheet book compared to Indian banks that do not have much exposure in derivatives. As such, Indian banks have adequate capital adequacy.
-- Fifth, most commercial banks are owned by the Government of India and thus have implicit guarantee of Government for capital infusion. The Government of India has signaled its willingness to infuse Rs 140 billion capital into Indian PSU banks.
-- Sixth, most Indian banks collect retail deposits from patient depositors and do not have substantial wholesale deposits unlike their foreign counterparts.
-- Seventh, the Indian banks have mature management, having absorbed a number of deregulation measures in credit and treasury business in the last two decades. Banks are expected to take the latest deregulation of savings rate in their stride.
In view of the above, Brickwork has maintained a 'Stable" outlook for the Indian Banking sector in the coming six to twelve months. The list of rated banks and the key ratios are enclosed below in Annexure.
Annexure
For picture(s)/data to illustrate this release click below:
http://www.BusinessWireIndia.com/attachments/Annexure(3).pdf
Annexure(3).pdf
CONTACT DETAILS
Anitha Girish, Media Relations, Brickwork Ratings, +91 (80) 40409940, media@brickworkratings.com
KEYWORDS
CONSUMER, BANKING, BUSINESS SERVICES, Financial Analyst
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