“Indian Banks’ Profitability Weeker Than BRICS Peers, But Will Improve Next Fiscal year”
According to the Moody’s Investors Service, the Indian banks have weaker profitability than the BRICS nations. But also claimed that the banking will improve in the next fiscal year as the assets are expected to be in a stabilized manner. On this matter the Moodys’ also claimed that at the end of 2017 the equity ratio of 8.7 % was the weakest for the Indian Banks.
The main reason mentioned in this was the quality of assets in India is not strong due to the stressed public sector banks. The infusion from the government can boost up these banks’ capital ratio. The high credit costs at the state-owned banks caused the unprofitability to the whole system.
On the other side, the banks of Brazil and South Africa are the leading players among the BRICS nations, By having the highest return from their assets. It also accepted the fact that Indian banks had similar pre-provisioning profitability to the Chinese banks. But, in the recent time's the return of assets has become negative because of the high costs of credit from the public sector banks. The condition will continue to be the same in the current fiscal year. But, the profitability of the banks will improve from the next fiscal year as the policies will change.
The report said that the Indian Banks had the second highest amount of the Non-Performing Loans (NPL) in the year 2017. It also said that the Indian NPL ratio was in double digits in the year-end of 2017. But, also affirmed that the recognition of the stressed assets is almost complete and new Non-Performing Loan (NPL) formation will moderate 12 to 18 months, which will be helped by the on-going deleveraging. The resolution of the stressed assets will ultimately decline the NPL ratios.