Asset quality pressure to persist for Indian banks in 2013: S&P

Growth outlook looks better, but some headwinds in global economy will continue to weigh on growth in Asia-Pacific

The global rating agency Standard and Poor’s today said the factors constraining the asset quality of banks in Asia Pacific region including India will persist in 2013.

The region's economy is likely to show a moderate recovery in 2013 after a sharp drop in growth in 2012, but some headwinds in the global economy, such as negative GDP growth in the eurozone, will continue to weigh on growth in Asia-Pacific.

Some of the more debt-laden corporate and household sectors in the region remain susceptible to external shocks, the report said. Outlook on ratings on half of the banks in Japan and all the banks in India are negative, reflecting negative outlook on these sovereign ratings, S&P said.

The other sovereign rating agencies in the region have stable outlooks.

"Hikes in property prices, some fueled by easy monetary conditions in the global market, pose additional risk to banking systems in many countries," said S&P’s credit analyst Ritesh Maheshwari. "In contrast to Europe and the U.S., private-sector credit in Asia-Pacific has grown over the past several years."

Maheshwari said that the fast pace of loan growth, particularly in emerging markets, could encourage excess investment and lead to economic imbalances.

The low interest rate environment and intense competition are squeezing banks' loan margins, which may in turn constrain their revenues. Hence, the banks will feel compelled to execute cautious credit control as well as proper pricing and growth strategies," it said.