Pressure on asset quality and profitability of Indian banks will persist well into 2015-16 as improvement in performance is expected only in the latter half of the year, according to rating agency Crisil.
“Growth in advances is likely to pick up only marginally in 2015-16 from an estimated 11 per cent in 2014-15 given the expectation of low level of capital expenditure by the private sector over the medium term.
“The interplay of several factors will determine the asset quality of banks,” the rating agency said in a report.
The gross non-performing assets (NPAs) and the overall weak assets, estimated at 4.4 per cent and 6 per cent, respectively, by March 31, 2015, are not likely to improve materially in 2015-16.
It added that the improvement in macroeconomic environment and pickup in industrial and infrastructure activity will help reduce stress on asset quality in 2015-16.
Furthermore, regulatory initiatives such as allowing banks to lend longer-term loans to existing and new projects in core industries such as infrastructure, with periodic refinancing, are expected to reduce pressure on borrowers’ cash flows in these industries.
Regulatory forbearanceHowever, the withdrawal of regulatory forbearance on standard loans restructuring from April 1, 2015, could result in higher slippages in the near term.
Also, the performance of the existing stock of restructured standard assets as they come out of their moratorium period on repayment will remain a key factor influencing asset quality in 2015-16, it said.