Banking sector: asset quality to remain under pressure

According to rating agency ICRA, the Indian banking sector’s asset quality is estimated to remain weak due to moderated addition in NPAs. The fresh additions to NPAs in December quarter were relatively low as compared to previous quarters.

 Public sector banks continue to face asset quality pressures due to slow down in their NII over five consecutive quarters. This was mainly due to rising NPA levels, slower credit growth and reversal of interest income on a accrual basis.

According to the report, new additions in NPA were lower at Rs 26400 crore as compared to Rs 1.36 lakh crore in nine-month period of FY17, which was aided by write-offs during last quarter.

Weak capital constraints are expected to lead to lower growth in advances followed by lower net interest income in coming quarters. Operating expenses are also seen rising, further weakening the profitability, and making the internal capital generation slow, which will in turn weaken the capital requirements.