Credit risks for Indian banks are manageable as they are lending mostly to moderate and low-risk sectors, rating agency Standard & Poor's (S&P) said today.
"We don't expect credit risks to soar among India banks over the next few years at least, as their loans books remain weighted toward moderate-risk and low-risk industries," Geeta Chugh, credit analyst, S&P said in an article 'Unravelling The Credit Risks At Indian Banks'.
S&P Ratings said its assessment of Indian banks' credit risks exposure was based on the creditworthiness of sectors to which they lend, based on a combination of business and financial risks of companies in them.
"We expect these banks to contain exposure to high-risk sectors to less than 20 per cent of their loan books over the next five years," the analyst said.
The banks' exposure to medium-risk segments (like infrastructure) would increase in the range of 65-70 percent, whereas low-risk sectors (like residential mortgages) may account for 15 to 20 per cent of their loan books, it added.
Despite the rapid growth in loan disbursals in the past decade, the asset quality of Indian banks has improved, it said.
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"The improvement in asset quality has been due to favourable macroeconomic conditions, a superior loan mix and improving risk management practices," Chugh said.
S&P Ratings also said nonperforming loan ratios of Indian banks could increase in 2011 due to potentially higher slippages from restructured loans.
"We, however, expect the ratios to peak at about 2.8 per cent by March 31, 2011, from 2.4 per cent a year earlier," it added.