Pvt. banks better placed to gain from upturn: Fitch

Govt's proposed $ 1 bn capital infusion in public sector banks may be inadequate.

Credit growth of banking sector may moderate further in the current financial year as worsening asset quality coupled with capital constraints were acting as impediments, according to ratings agency, Fitch.

Bank credit grew 9.7 per cent on a year-on-year basis till middle of November as compared be 10.5 per cent during the same period of the previous year, Reserve Bank of India showed,

The rating agency said private banks are in a better position to take advantage of the economic recovery.

“The recovering GDP growth outlook is a positive and should bode well for the sector, and large private banks are distinctly better placed in leveraging a rebounding economy,” according to Fitch Ratings.

The rating agency also said the government’s proposed $ 1 billion capital infusion in public sector banks may be inadequate to support growth and achieve capital requirements under the new Basel-III norms.

“State-owned banks — which carry a disproportionate share of the stressed assets — have little choice but to look at strengthening balance sheets if they to revive profitability, internal capital generation and equity valuations in any meaningful way,” the rating agency said.

Fitch estimates that the banks would require around $ 140 billion in total capital to ensure full implementation of Basel III norms by FY19.

Fitch expects, banking sector’s stressed assets ratio to improve marginally in FY16, from 11.1 per cent in FY15, although there is still some time before a reversal in absolute non-performing loans.

“New NPL growth has started to slow down across many banks, but resolution of the existing large stock will be a slow and protracted process - as structural challenges in stressed sectors still persist while corporate leverage remains high,” the rating agency said.