Rating agency, ICRA, on Thursday said it expects the asset quality of banks to deteriorate further given the rising proportion of restructured loans and fundamental issues in certain sectors.

“ICRA anticipates a further deterioration in the quality of banks’ credit portfolio due to structural weaknesses in certain sectors and an increasing proportion of restructured loans,” the agency said.

A slew of lenders, including the State Bank, have seen considerable spike in their non-performing assets or restructured books on the back of high interest rates, coupled with slackening economic growth.

According to ICRA, the gross NPA ratios of state—run banks was stable at 2.4 per cent for the first half of the fiscal, while the same number for the SBI Group rose to 4.3 per cent from 4 per cent.

Meanwhile, ICRA said banks are unlikely to cut lending rates soon as their cost of funds will continue to be elevated over the next two quarters given the significant share of fixed-rate, medium-term resources they have mobilised in the recent past.

(This article was published on March 1, 2012)
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