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Global rating agency Standard and Poor’s (S&P) on Thursday said ratings for Indian banks are likely to be weak for 2017-18, owing to recent changes made by the Reserve Bank of India (RBI) for recognition of restructured assets.

“The central bank’s recently announced change to the recognition of restructured loans will probably foster early recognition and higher provisions across the banking sector,” said S&P, adding that other announcements, such as smoothing provisioning for mark-to-market losses on investments over four quarters, will temper but not offset the immediate burden from strained performances.

Its comments come at a time when most banks have begun to announce their results for the quarter ended March 31 as well as for the full financial year 2017-18.

The RBI has recently tightened norms for classifying a loan as a non-performing asset, and has also done away with all restructuring schemes under which banks could give more time for repayment to borrowers to avoid a bad loan classification.

S&P further said that most new non-performing loans (NPLs) for the quarter ended March 2018 won’t be “new” as they would have come due to the recent withdrawal of restructuring schemes, such as corporate debt restructuring, strategic debt restructuring, scheme for sustainable structuring of stressed assets and the 5/25 scheme.

“We continue to believe that at a system level the ratio of stressed assets is realistically around 13 per cent to 15 per cent, compared to 12.3 per cent in the first half of 2017-18,” it said, adding that it does not expect this to rise further unless there are one-off events such as the recent case of fraud at Punjab National Bank. S&P Global Ratings credit analyst Michael Puli also said rating downgrades for most banks are unlikely.

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