International Rating Agency Standard & Poor's industry report on top Asia Pacific banks expresses confidence in the Indian banking system and says the outlook is stable. In a report that covered 40 major banks in the Asia-Pacific region, the report noted that the risks that are present can be managed and pointed out that it had no negative rating on any Indian bank.

The report said, "Margin pressures on Indian major banks are expected during the current fiscal year, mainly because of increasing pressure on deposit rates. We expect credit costs to decline for most large Indian banks, however, in line with an improvement in the asset quality. Therefore, despite the pressure on margins, we expect overall average ROA in the sector to be stable, at about 1 per cent."

S & P believes that a property market price correction, potentially in the low double-digit vicinity, remains a possibility in both China and India. But it does not expect a hard landing for property prices, and thinks that the major banks should be able to contend with a property price correction at current rating levels. Noting that Indian banks were relatively less exposed, it said, the real estate and construction sector (excluding residential mortgages) accounts for less than 5% of total loans for Indian banks, compared with 13% for Chinese banks. Hence the potential direct impact of a property price correction would likely be higher on Chinese major banks than on Indian ones, the report added.

The report said that Asia-Pacific region's major banks are in good health by global standards, affording investors a degree of comfort and confidence in a global financial institutions sector still awash with unwinding risks following the global financial crisis. Looking at 40 of the largest banks in Asia Pacific, currently 37 of them have stable outlooks, three have positive outlooks, and not a single institution has a negative outlook.

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