Banks may find it a little easy on profitability: Fitch

Pressure on profitability of public sector banks is likely to come off this year due to improved asset quality even as the last fiscal was challenging enough.
"Pressure may begin to ease, aided by bond treasury gains and peaking of asset-quality pressures while a meaningful recovery in earnings is unlikely in the short term," said Fitch in a report titled 'Indian Banks Report Card: FY15'.
"The performance of India's state bank sector remained challenged in FY15 (to March-end 2015), with continued pressure on asset quality and weak capital."
A difficult year for Indian banks in 2014-15 was characterised by weak credit demand despite a gradually improving macro picture, it said, adding that PSU banks in particular continued to face asset-quality pressure, falling profitability and weakened capitalisation on an adjusted basis.

System-wide loan growth, at 9.7 per cent, was the lowest over the past decade, and concentrated mainly on retail and farm credit.
The system NPL ratio rose to 4.6 per cent of total assets from 4.1 per cent in FY14 though the bulk of the deterioration was accounted for by restructured loans, as expected.

Capital needs are likely to increase substantially each year until 2018-19, it said, adding that there are few indications of a meaningful recovery in earnings in the short term though stressed assets are likely to have peaked and bad loan accretion is easing.
Fitch expects India's real GDP growth to improve gradually to 7.8 per cent and 8.1 per cent in FY16 and FY17, respectively.

"This should eventually help reverse the asset-quality cycle, but the recovery process will be slow. Corporate leverage is high while policy-rate transmission by banks via lending rates has been slow despite a cumulative 0.75 per cent rate cut by the central bank since January 2015," it said.
Anecdotal evidence suggests progress in stalled projects although any meaningful impact will await the ongoing restructuring, the report said.
"The outlook for FY16 is more positive for Indian bank credit. The system-wide stressed-assets ratio is likely to begin falling against the backdrop of a more favourable economic environment," it said.