Mumbai, Nov. 19: Standard & Poor’s (S&P) has taken a dim view of India’s banks, saying burgeoning bad loans and a fiscally-challenged government are serious threats.
The agency’s Asia-Pacific Banking Outlook 2003 puts India in the “high-risk industry” category, prompted by the Centre’s ever-rising appetite for loans and frail public-sector finances. “Structural weaknesses include a high degree of information risk and a lack of operational efficiency, which makes banks vulnerable not only to economic shocks but also to potential threats to their business franchise caused by dramatic changes in policy regulations,” the report states.
S&P estimates non-performing loans at around 25 per cent, while the recovery rate is in the region of 30 per cent.
A stable outlook has been assigned for banks in the Asia-Pacific region, including those in Australia, China, Hong Kong, Indonesia, Malaysia, New Zealand, Singapore, Thailand and Vietnam. Outlooks for banks have been revised to stable from negative for Indonesia and Thailand, and to stable from positive for Malaysia.
The outlook for the banking sectors in India, Japan, the Philippines and Taiwan remained negative, although S&P maintained that there are some signs of stability for select Taiwan banks. While Malaysia’s outlook was brought down to stable from positive, that of Indonesia and Thailand improved from negative to stable.
According to the review, Australian and New Zealand were the only countries characterised by low to moderately low risk banking sectors in terms of creditworthiness. China, Indonesia, India, Philippines and Thailand figure in the high-industry risk category. On Japan, S&P said among the banking systems of developed countries, Japan’s banks rank far ahead of all others in respect of high credit costs due to problem loans.
In its Report on Trend and Progress of Banking in India released recently, the Reserve Bank of India (RBI) has said that net NPAs of nationalised banks fell to 11.1 per cent by March 31, 2002 from 12.4 per cent in the previous year. However, NPAs of new private sector banks rose by more than 300 per cent to Rs 6,816 crore during the year.
The report divulged that retail loans that largely included housing, consumer and other personal loans rose by Rs 12,990 crore during the year, while loans to industry grew by over Rs 10,684 crore. It also indicated that during the year, voluntary retirement scheme (VRS) helped banks to show higher profitability.