BackStressed assets in Indian banks to peak in FY15: Fitch
Improvements will be slow as it takes time to resolve large stock of problem loans, particularly in infrastructure sector, says Fitch
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Mumbai:Fitch Ratings Inc. expects stressed assets of Indian banks to peak by March followed by a cyclical recovery, it said on Thursday.
However, improvements will be slow as it will take time to resolve the large stock of problem loans, particularly in the infrastructure sector, the ratings agency said in a statement. “Early signs of asset-quality stability are emerging at some large state-owned banks, which should be boosted by a pick-up in economic growth," Fitch Ratings said.
The Reserve Bank of India’s (RBI) recent amendments to Basel III capital norms are likely to help Indian banks to raise the large amount of capital which the sector requires, Fitch Ratings said.
RBI’s amendments include allowing additional Tier I instruments to have a shorter maturity of up to five years, be temporarily written down at a pre-specified trigger point, and sold to retail investors.
These features are more creditor-friendly, and would be likely to draw investor appetite for loss-absorbing capital instruments, the ratings agency said.
However, these may also introduce a moral-hazard risk, as the RBI may be forced to bail out retail investors should there be a need to impose losses, Fitch said.
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