Banks asset quality to worsen further: Icra

Rating agency Icra today said it expects the asset quality of banks to deteriorate further, given the rising proportion of restructured loans and fundamental issues in certain sectors.

"Icra anticipates a further deterioration in the quality of banks' credit portfolio due to structural weaknesses in certain sectors and an increasing proportion of restructured loans," the agency said in a report.

A slew of lenders, including State Bank of India, have seen considerable spike in their non-performing assets (NPA) or restructured books on the back of high interest rates, coupled with slackening economic growth.

The Reserve Bank, which has been maintaining that it is not a systemic issue, has made its concerns clear and had a meeting with top bankers yesterday on the NPA issue.

 

According to Icra, the gross NPA ratios of state-run banks was stable at 2.4% for the first half of the fiscal, while the same number for the SBI Group rose to 4.3% from 4%.

Meanwhile, Icra said banks are unlikely to cut lending rates soon as their cost of funds will continue to be elevated over the next two quarters given the significant share of fixed-rate, medium-term resources they have mobilised in the recent past.

"Elevated level of loan loss provisions would also constrain banks from reducing the lending yields without unduly impacting their profitability," it said.