The Hindu Business Line : S&P upgrades banking outlook to `stable'

The agency said key watershed structural reforms in India so far have improved the health of the banking sector's asset quality, profitability, and capital adequacy. The reforms recently introduced include the Securitisation Act; the establishment of a pilot asset reconstruction company (ARC) to auction non-performing assets (NPA); initiatives on improving recoveries from NPAs; the change in the basis of recognition of non-performing loans to three months (90 days); and the information technology upgrade of the banking industry, hence raising transparency and efficiency, the agency said in a press release.

According to S&P, Indian banking industry still faces challenges. "The industry still faces a number of key challenges," said Mr Adrian Chee, credit analyst at Standard & Poor's. "One is the overall capitalisation level of the banking industry, which could face some pressure going forward from higher demand for new credit and additional provisioning needs as it strives towards international standards of net NPA ratios," he added.

Another challenge, according to S&P, is for the industry to sustain the positive trend of improving asset quality and with stronger powers of foreclosure, banks have to remain focused in their efforts to recover on their NPA, yet to keep tight lid over any incremental NPAs.

"The ultimate impact of the changes, however, will be reflective of the degree of effective enforcement by the regulator," Mr Chee said.

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