Recovery for Indian banks will be gradual, says S&P

SINGAPORE – The revival of India's banking industry is likely to be gradual, according to Standard & Poor’s, which is tipping only moderate loan growth because, it says, the investment cycle will take time to revive. “We believe a revival in the capital expenditure cycle is some time away because companies have to first recoup returns on their earlier investments,” S&P says.

"We anticipate that the growth in stressed assets will recede in the next two to four quarters," said S&P credit analyst, Amit Pandey. "Any material improvement in asset quality will lag economic recovery, corporate
de-leveraging, decisive steps to alleviate problems in stressed sectors, and some respite on interest rates."

"The profitability of most of the public sector banks we rate will remain modest in fiscal 2015 because of under-provisioned loan books and sizable outstanding standard restructured loans."

S&P says Indian banks have sizable capital needs to support growth and to meet Basel III requirements, and that the low capitalisation of some rated public-sector banks is likely to constrain growth. www.standadandpoors.com (ATI).