Credit rating agency Moody’s on Tuesday said its outlook on the Indian banking system for the next 12 to 18 months remains negative as “asset quality” was set to weaken due to the current uncertainty in the macro-economic environment.
Indian banks have been hit by an economic downturn and high interest rates that have caused a surge in the share of loans that stop yielding interest -- which makes them non-performing assets (NPAs).
Moody’s downgraded its outlook for the Indian banking system in November 2011 from stable to negative.
“This environment is characterised by slow economic growth, high inflation, high interest rates, and a weak local currency, and we expect these factors to lead to a further deterioration in asset quality, an increase in provisioning costs, and a fall in profitability,” said Vineet Gupta, vice-president and senior analyst, Moody’s.
The gross non-performing assets of public sector banks rose to Rs.143,765 crore as of September end from Rs.112,489 crore as of end March.
The agency said the government’s high degree of involvement in the banking sector and related public accountability accords higher systemic support for the sector.
The finance ministry has also asked banks to ensure that there are no fresh slippages, even while putting pressure on the banks to increase lending.