Indian banks are strong, downgrade unwarranted: govt

Brushing aside the downgrade of Indian banks by Moody's, Government today said the rating has no significance as domestic lenders are much  stronger than their global peers.

"We are not concerned. We are not affected by the downgrade. Looking at how the global banks are faring, we are much stronger and the ratings have no significance," Financial Services Secretary D K Mittal told PTI.

He was reacting to rating agency Moody's lowering the outlook of the Indian banking system to "negative" from "stable". A "negative" outlook is characterised by volatility and uncertain conditions.

Moody's said that slow growth, both in domestic and foreign economies, is putting stress on banks' asset quality, capitalisation and profitability.

"I don't see any reason for the downgrade. Our banks are fully capitalised and the government will continue to capitalise it," Mittal added.

As regards bad loans of Indian banks, Mittal said, "Our NPAs are better compared to other global banks. Indian economy is growing at eight%, so the stress that Moody's has pointed out, is more outside India than within. We are growing better and our credit growth will also be good."

Yesterday, Reserve Bank Deputy Governor Subir Gokarn had also said that the non-performing assets (NPAs) of banks are not posing any threat to the banking system.

However, in today's report Moody's said, "With asset quality, given the tightening environment, we anticipate that it will deteriorate over the next 12-18 months, thereby causing an increase in provisioning needs for the banks in FY'12 and FY'13."

Following the ratings downgrade, the BSE banking index declined over 2% to 11,082 points at 1444 hrs.