With growing vulnerability to an adverse business environment and pressure from stressed assets, global rating agency Fitch on Friday said it would step up scrutiny of three public sector banks (PSBs) - Punjab National Bank (PNB), IDBI Bank and Canara Bank.
Indian banks, especially PSBs, will see more of a rise in bad loans and restructured assets in the next 12 to 18 months due to a long spell of economic slowdown, banking sector analysts with Fitch Analytics said in a conference call. The agency is slated to release a report on the Indian banking system early next week.
With slow growth in earning and higher credit costs, the capital position of state-owned banks will appear weaker as one goes forward. Their dependence on the government for capital injection could grow, is the assessment.
PNB has seen a sharp increase in stressed assets, of close to 15 per cent of loans in FY13; it was 11 per cent in FY12. This is the highest ratio among Fitch-rated state-owned banks. Fitch expects the proportion of stressed assets to rise further.
PNB's stressed assets are 134 per cent of its equity. The bank would take longer to bounce back even under a cyclical recovery, feels Fitch. Notwithstanding its funding and profitability strength, Fitch maintains a negative bias on PNB's viability rating.
On IDBI and Canara Bank, the agency said their present viability rating took into account structural weaknesses on the funding side and their business model.
These two banks have been wholesale-focused, which for IDBI partly stems from its legacy as a development finance institution. Profitability, as a result, has traditionally been on the lower side for both and this has been further compressed in recent times due to worsening asset quality.
Canara Bank's total stressed assets book was 10 per cent of the loan portfolio; the ratio of non-performing assets to the total was 2.6 per cent).
For IDBI, total stressed assets stood at nine per cent (NPL ratio, 3.2 per cent).