India Banking & Financial Services Q4 2018
We have revised down our 2018 forecast for growth in the Indian financial services sector net value added (NVA)from 11.5% to 7.5%, totalling USD156bn. We have also raised our 2027 forecast from USD363bn to USD327bn. Poor asset quality isthe main threat to the banking system with public sector bank (PSB) non-performing loan (NPL) ratios at around 15%. We also notethat six PSBs (30% of all PSBs) did not meet the minimum Tier 1 ratio under Basel III norms by end-2017 and furtherrecapitalisation will be required to help all Indian state-owned banks meet the minimum 8.25% Tier 1 ratio under Basel III norms, atarget that is necessary to ease investor concerns. The overall PSB sector reported a net loss in FY2017/18 in stark contrast to theoverall robust profitability of the private banking sector. There are concerns that the Reserve Bank of India (RBI) lacks the regulatorymuscle to improve standards in PSBs, although it has acted in recent months to impose fines for non-compliance. The revelationsconcerning fraudulent transactions amounting to INR113bn (USD1.8bn) by the state-owned Punjab National Bank threaten toundermine other areas of India’s public banking sector and have rocked banking stocks.
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