ASSOCHAM forecasts rough weather for banking system

Mumbai, Nov 8 : The Association of Indian Chambers of Commerce (ASSOCHAM) today said the Banking system in the country will sail in rough weather unless credit expanion takes a fast track In a statement here, ASSOCHAM Prsident Swati Piramal said the slow credit growth further with enhancing provisioning effected by the Reserve Bank of India will eat into the bottomline of the banks.

While on one hand the Capital Adequacy Ratio of the banks went up by 1.6 per cent in the second quarter of the current fiscal, the Non Performing Assets rose by 26 per cent portraying a mixed picture of the Banking system.

''Although the Indian banking sector has remained insulated from the global financial crisis, the emerging trends show mixed signals, said Dr Piramal.

Improvement in CAR reflects better financial health of banks and government's recent move to recapitalise weak PSUs bank was move in rigth direction. However, increase in NPAs is a matter of concern as it directly affected the solvency and profitability of banks.

According to ASSOCHAM, the increase in NPA of the compared period should inspire government to quickly move towards banks consolidation as it will bring down their risks and expand banks balance sheet size to global standard to take on emerging challenges in the financial sector, Dr Piramal said.

Solvency Analysis of Indian Banking Sector as carried out by ASSOCHAM revealed that on an average 26 per cent rise in net non performing assets (NPAs) had been registered by 21 public sector and commercial banks during the second quarter of the FY'10 as against Q2-FY’09.

However, the average capital adequacy ratio (CAR) of the banks improved to 13.68 per cent in Q2-FY ‘10 from 12.08 per cent in the previous year, added Dr Piramal.

The analysis of the Indian banking sector was based on the quarterly results posted by 21 Indian banks For a macro analysis, the total 21 banks included an aggregation of 19 public sector banks (PSBs) and 2 major private sector banks. It was also based on two broad parameters including net non performing assets and capital adequacy ratio and also the new enhanced provisioning coverage ratio and additional provisioning on commercial real estate standard assets.

As per the analysis, the aggregate net non-performing assets (NPA) of 21 banks increased by 26 per cent to Rs 25,137 crore in second quarter of 2010 from Rs 19,920 crore in the same period of FY’09.

In terms of capital adequacy ratio, out of the 21 banks posting their results for the quarter ending September 2009-10, it was found that four banks witnessed a fall in their CAR from the previous fiscal, but they still managed to remain above the prescribed limit of nine per cent posed by the Basel II accord.

--UNI

(c) 2009 Published with permission from United News of India.
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