A cashier counts Indian banknotes as customers wait in queues inside a bank in Chandigarh, India. Reuters
New Delhi: The Indian banking sector’s non-performing loan (NPL) ratio for the nine months to December 2018 fell to 10.8 per cent from 11.5 per cent at fiscal year end 2018, according to Fitch Ratings’ estimate.
Lower fresh slippages and better recoveries helped reduce absolute non-performing loans across several banks, the global financial research agency said.
Fitch Ratings, however, added that the provisioning pressures persisted with 14 out of 21 state-run banks reporting losses. Mid-sized or small state-run banks were the most affected as credit costs, despite some moderation, exceeded their weak income buffers.
“Complex legal proceedings have led to delays in the resolution of certain large NPLs among the system’s $150 billion in NPLs (FY18), stretching recoveries well beyond the stipulated timeframe of 270 days,” the agency said.
There has also been increasing pressure from farm loans due to a weak monsoon and loan waivers, and small and medium-sized enterprises (SMEs), it noted.
In January 2019, banks were allowed a one-time restructuring of SME loans under Rs 250 million. The government’s February 2019 announcement to inject another $7 billion into its banks by FY19 will help banks meet minimum capital norms.
But, Fitch said, it is unlikely to materially boost credit growth as banks still have to meet a 0.625 per cent capital conservation buffer in FY20 while negotiating more provisions.
“Fitch estimates that Indian banks will require an additional $23 billion by FY20 to sufficiently meet minimum Basel III capital standards, achieve 65 per cent NPL cover and pursue low double-digit loan growth,” it added.