Fitch Ratings India said today that, with focus shifting away from directed banking to return on equity (RoE)-driven banking and enhancing shareholder value, the time is ripe for consolidation. The weaker banks would need to merge entirely or sell some of their network to stronger banks, the agency said.
The process has already begun among the new and old private sector banks, and public sector banks can be expected to be the next key players in the consolidation exercise.
Fitch released an analysis of the performance of Indian banks in FY 02 today. The report also includes key financials and ratios of 27 of the largest government-owned and new private sector banks in India.
More From This Section
In the special report titled "With a little help from my friends", Fitch notes that the Indian banking sector had improved its performance in FY 02, primarily through record gains from trading in government securities (G-secs) in a soft interest rate regime.
The banks utilised this opportunity to improve loan loss coverages. The growing focus on competitiveness saw government-owned banks (accounting for 79 per cent of the total banking assets) improve their cost structure through a voluntary reduction in manpower. This is timely as credit yields and margins continue to remain under pressure, the report said.
The reported capital adequacy ratios were above 10 per cent in most cases -- against the RBI stipulated 9 per cent -- and fresh issuances of Tier-II bonds are planned during the current fiscal year in anticipation of a growth in loans.
According to the rating agency, the spurt in disbursements to the housing loan and consumer loan segments are new challenges.
The loan loss provisioning requirement is expected to remain high in the medium term, given the tightening prudential norms. Non-performing loans will be recognised as 90 days overdue from March 31, 2004, from the present 180 days overdue.