Rating agencyStandard & Poor's raised alarm about the a possible deterioration in asset quality of Indian banks in its latest report titled 'India banking outlook: Economic headwinds are likely to lower asset quality and earnings in 2012.'
S&P sees a sharp spike in the restructured loans in 2011-12 and 2012-13. The Corporate Debt Restructuring (CDR) portfolio of the system will rise from 2.9 percent this fiscal to between 4 and 5 percent next fiscal, S&P India credit analyst Geeta Chug said.
Chug added that this will be driven by the stress coming in from the high risk construction and real estate sectors.
However, she said, S&P is positive about the private sector banks as they will be improving asset quality in fiscal 2012.
There are some downside risks to the standalone asset quality of these banks, especially the public sector ones, which are likely to face significant headwinds, she said.
Therefore, the agency expects margins of banks to decline 20 basis points next fiscal to 2.5 percent. However, overall the agency maintains a stable outlook for their credit rating.
She was talking to reporters on a conference call after releasing the report.