Stricter regulator norms may impact banks' margin: CII

Profitability of Indian banks is projected to "decline sharply" due to the impact of stricter regulatory requirement like new global capital norms and priority sector lending guidelines, a survey said today.

The profitability of the Indian banking sector, the CII survey said, "is projected to decline sharply as financial health of banks take a hit owing to impact of stricter regulatory requirement" amid rising stress on asset quality.

"The Basel-III capital requirements are likely to have the highest impact on profitability of the Indian banking sector followed by the revised guidelines on Priority Sector Lending (PSL)," it said.

Further higher provisioning norms for restructured assets are also expected to have major impact on bank's profitability as highlighted by the respondent banks, it added.

The survey covers 15 banks, including five public sector banks (PSBs), three private and seven Foreign Banks.

Besides stricter regulatory requirements, the surveyed banks foresee deteriorating asset quality as one of the most critical challenges impairing profitability of the sector.

Raising concerns on the deteriorating asset quality of the sector, 80 per cent of the respondents foresee a rise in their NPAs level, while 88 per cent projected an increase in their restructured loan accounts in current financial year.

CII Director General Chandrajit Banerjee said that since the global financial crisis the regulatory environment for the banking sector has changed significantly globally.

"Even as growth, inclusion and stability have been the key focus areas in the Indian context, the current regulatory and policy environment is critical to ensure that banks remain financially sound and profitable," he said.

Respondent banks have estimated deterioration in key performance indicators in the current fiscal including credit growth, net interest income, growth in Profit After Tax (PAT) and return on equity.

Basel-III norms, under which banks will have to hold core capital of at least 7% of risk weighted assets by 2018, will be implemented in a phased manner in India from April 1.