Credit growth for Indian banks is likely to remain muted at 15 per cent in the new financial year beginning April 2013, according to Standard & Poor's Ratings Services.
The troubles for the banking system are likely to increase in the next 12 months due to the slow economic growth and sluggish fiscal reforms.
However, the situation is likely to improve in the fiscal ending March 31, 2015, though not dramatically, said the credit rating agency in a report.
The agency observed that the recovery in the performance of the corporate sector is six months away. For fiscal 2014, the report expects non-performing assets of banks to surge to 3.9 per cent of gross loans. Further, banks’ return on assets will remain depressed, at about 0.9 per cent.
The report projects economic growth at about 5.5 per cent for this fiscal (FY 2012-13), 6.4 per cent in FY 2013-14, and 7.2 per cent in FY 2014-15 on the back of increased private consumption and welfare spending, higher agricultural output and recovery in exports.
The report, ‘India Banking Outlook 2013: More pain but relief might be on the way,’ states: “Critical sectors that depend most on Government action include power, roads, and metals and mining. Construction and auto, among other sectors, would benefit from economic recovery and increased consumption.
“However, an investment revival could take longer unless the Government undertakes significant measures to revitalise the infrastructure sector,” said S&P.
Further, Indian banks’ strong core customer deposit base will continue to provide access to stable funds.
The report has estimated that the banking industry would face a capital shortfall of $3-4 billion if it immediately tried to attain common equity Tier-1 ratio of 8 per cent to comply with Basel III guidelines, which kick in on April 1, 2013.
In addition, S&P has maintained the negative outlook on all the Indian banks, reflecting the sovereign ratings.