Standard & Poor's upgrades India's banking sector outlook

Monday, 01 September 2003, 19:30 IST
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NEW DELHI: Standard and Poor's Ratings Services said Monday it had upgraded the outlook for the Indian banking system but warned that the industry risks in the country remain high relative to other developed banking markets. The global credit rating major revised the outlook for the domestic banking sector to 'stable' from 'negative,' saying key structural reforms so far had improved the health of the sector's asset quality, profitability and capital adequacy. The Indian government introduced a slew of new initiatives in recent years to boost profitability, and raise transparency and efficiency of banks. These include the introduction of a securitisation act to recover bad loans, establishment of an asset reconstruction company to auction non-performing assets of banks, and emphasis on technology up-gradation in the industry. "The industry still faces a number of key challenges," Adrian Chee, credit analyst at Standard & Poor's, said in a statement. "One is the overall capitalisation level of the banking industry, which could face some pressure going forward from higher demand for new credit and additional provisioning needs," Chee added. He said banks had to remain focused in their efforts to recover their spiralling bad loans, or non-performing assets, to sustain the positive trend of improving asset quality. "The ultimate impact of the changes, however, will be reflective of the degree of effective enforcement by the regulators," said Chee. The asset quality of India's scheduled commercial banks, as denoted by its gross non-performing assets to loans, has been improving in the past six years to around nine percent for 2002-03, from 15.7 percent in March 1997.
Source: IANS
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