Indian banks head for profit plunge as rules bite, says CII

Profits of Indian banks are projected to decline sharply in the current fiscal year (2012-13) due to strict regulatory requirements and a rise in bad loans, a survey of 15 banks by the CII has found. HT reports.

Profits of Indian banks are projected to decline sharply in the current fiscal year (2012-13) due to strict regulatory requirements and a rise in bad loans, a survey of 15 banks by the Confederation of Indian Industry (CII) has found.

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“The Basel-III capital requirements are likely to have the highest impact on profitability of the Indian banking sector followed by the revised guidelines on priority sector lending (PSL),” the report titled Health of Indian banking sector in current regulatory environment said.

From an average 23% growth in 2011-12, surveyed banks have projected an increase of 14% in profit-after-tax for 2012-13.

Higher provisioning norms for restructured assets are also expected to have major impact on banks’ profitability. “Most of the respondent banks have witnessed a sharp deterioration in asset quality in the current fiscal, as reported by an increase in their NPAs (non-performing assets or bad loans) and restructured loan accounts,” said the report.

“The credit downgrade of big Indian banks is seen as a warning signal of stress on asset quality facing the Indian banking sector,” it added.

“Even as growth, inclusion and stability have been the key focus areas in the Indian context, the current regulatory and policy environment is critical to ensure that banks remain financially sound and profitable,” said Chandrajit Banerjee, director general, CII.