The Hindu Business Line : Asset quality of banks to improve: Fitch

THE asset quality of Indian banks is expected to remain generally stable or improve slightly as the new non-performing loans formation rate has slowed over the last two to three years, according to Fitch Ratings.

In its Special Report titled "Indian Banks: Improved Performance in Recent Years", Fitch has observed that asset quality concerns have receded through a combination of NPL write-offs, recovery efforts and improved credit origination processes. The reported net NPL ratio of the banking system has halved between FY02 and FY04.

While the improvement is noteworthy, banks will need to continue upgrading their credit appraisal and monitoring systems to handle the rapidly growing consumer loans business, besides managing their existing corporate and SME loans, according to Mr Amit Tandon, Managing Director, Fitch Ratings.

According to Fitch, the Indian banking system is in the midst of a transition from being relatively weak to moderately healthy, accompanied by tightening prudential norms and increased disclosure requirements.

Indian banks seen a significant improvement in asset quality thanks to their robust performance in recent years; this has also been bolstered by capital infusions in a buoyant market.

Banks are now focused on improving their competitiveness and quality of earnings, backed by ongoing investment in technology and risk management systems. The proposed Basel guidelines will, however, result in capital raising remaining a priority, and coupled with a growing need for scale, may well trigger some sort of consolidation in the industry.

After soaring during the last two years (FY03 and FY04), profitability is currently under pressure on account of falling trading income in a rising interest rate environment. Banks have been trying to develop other non-interest related income streams including distribution of third-party investment and insurance products and other emerging wealth management opportunities, it said.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Rupee recovers; bond prices up

IDBI Homefinance hikes PLR by 25 bps

WMA of States hiked by 9.77 pc

Return of capital — PNB not to bear additional tax on reduction of share premium account

Vijaya Bank opens branches

Andhra Bank to extend biz hours

Banks face year-end valuation blues

Asset quality of banks to improve: Fitch

HDFC Bank, Visa launch money transfer service