Indian banks are expected to remain robust during the current fiscal and the next even if non-performing assets and interest rates rise, according to global rating agency Fitch.
Indian banks are expected to remain robust during the current fiscal and the next even if non-performing assets and interest rates rise, according to global rating agency Fitch.
"...the Indian banking system is expected to remain resilient even under rigorous stress assumptions on both asset quality and profitability during FY10 and FY11," the global ratings agency said.
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The impact of the agency's stress test on 30 Indian banks accounting for 78 per cent of system assets indicated that capital is protected for a majority of the banks, while some of the weaker banks would need to raise core capital in order to better prepare for the current downturn in the credit cycle.
"Fitch expects system profits at the aggregate to be able to absorb sharp increases in credit cost, leaving the aggregated capital unimpaired," the agency said. The key elements in Fitch's simulation exercise have been the depth and pace of deterioration in performance". ...for example, simulating gross NPL levels to nearly 10 per cent by March 2011 on the existing loan portfolio and measuring the impact of sharp rises in credit costs."
The Reserve Bank of India's policies during the credit boom in FY06 - FY08, including increased general provisioning, have helped Indian banks better prepare for the downturn, the agency said.
"The immediate impact of a crisis in credit quality should be absorbed by pre-provision profits of most banks, and the issuer ratings for the stronger banks have therefore been largely stable as their capital is not expected to be threatened in the next 12-18 months," Fitch said.
Nine banks fail the profit test, either through weaker margins, high restructured loans, portfolio concentrations or a combination of these, it added.
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