Indian banks will continue to reel under the impact of bad loans in the current financial year, although new NPAs may decline, says a Moody’s report.
“In our opinion, the Indian banks are unlikely to reduce their problem loan ratios in FY2016 but the new Non Performing Loans (NPL) will probably decline,” Moody’s Investors Service said, based on findings of a poll.
State-owned banks have little capacity to improve their generally weak capital buffers through retained earnings as capital infusion, including from government, is likely to remain scarce, it said.
Bulk of the respondents, according to a poll result, are not expecting any significant improvement in the capital levels of the state-owned banks over the next two years.
According to the poll, in inflation-adjusted terms, property prices have appreciated, particularly rapidly, in Hong Kong, India, Malaysia and Singapore since 2008-09 global financial crisis that was triggered by the housing sector.
Respondents were split when asked whether they expect meaningful reform of corporate governance of the PSU banks over the next three years.
“There was 60:40 split between respondents expecting improvements in Indian banks’ asset quality in the financial year ending March 2016 and those who saw a stable trend,” the poll said.
The poll was conducted real time on a combined audience of around 230 professionals from Hong Kong and Singapore.