India Banking & Financial Services Q1 2019
Poor asset quality is the main threat to the banking system with public sector bank (PSB) non-performing loan (NPL)ratios at around 15%. We also note that six PSBs (30% of all PSBs) did not meet the minimum Tier 1 ratio under Basel III norms byend-2017, and further recapitalisation will be required to help all Indian state-owned banks meet the minimum 8.25% Tier 1 ratiounder Basel III norms, a target that is necessary to ease investor concerns. The overall PSB sector reported a net loss in FY2017/18,in stark contrast to the overall robust profitability of the private banking sector. There are concerns that the Reserve Bank of India(RBI) lacks the regulatory muscle to improve standards in PSBs, although it has acted in recent months to impose fines for non-compliance. The revelations concerning fraudulent transactions amounting to INR113bn (USD1.8bn) by the state-owned PunjabNational Bank threaten to undermine other areas of India’s public banking sector and have rocked banking stocks.
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