By IANS,
New Delhi : The fundamental credit outlook of the Indian banking system is stable even as the sector continues to face challenges in raising fresh capital, according to a report by Moody’s Investors Service.
The report, released Wednesday night, said India’s banks have benefited from the strong economic cycle driving a surge in loans and providing considerable growth potential.
“The recent global credit crisis and liquidity crunch in the financial markets had very limited to no impact on Indian banks, with only certain large banks with international operations mildly affected by asset price adjustments,” the report said.
“A positive and important rating driver for all rated Indian banks, in particular the PSBs (public sector banks), is their robust deposit franchises, assuring them of a relatively cheap and stable source of funding and a comfortable liquidity profile,” it added.
“For many rated PSBs, a key challenge remains their ability to modernise by upgrading their technological platforms and capabilities through branch computerisation and implementation of a core banking solution,” said Nondas Nicolaides, Moody’s vice-president and the author of the report.
“Outdated human resource structures and rigid and inefficient labour forces also limit the PSBs’ ability to attract talent and compete on equal terms with their more modern counterparts,” Nicolaides added.
The consequent increase in competition – with the PSBs losing some market share to private sector institutions and foreign banks should also result in a more efficient and transparent banking system, the report said.
Overall loan growth in the Indian banking system remains robust but has slowed somewhat, largely due to a significantly lower increase in retail loans.
The key concern, according to the report, is the ability of the weaker PSBs and small private sector banks to raise fresh capital.
The banking system’s steady improvement in asset quality in recent years has been exerting upward pressure on the bank financial strength ratings (BFSR) of the banks, despite the sharp rise in credit growth, Moody’s said.