Amid rising fears about the asset quality of banks in India, foreign brokerage Morgan Stanley today said lenders' bad loan formation is slowing down, and assigned "overweight" to private bank stocks.
"As the economy starts stabilising, the risk of another leg down in asset quality is low in our view," the American brokerage said in a report here.
"Over the past two quarters, we have seen signs of some improvement in bad loans, and we expect Q4 to be worse (there is some seasonality towards year-end), but the trend in FY15 is likely to be downwards."
The report, however, said on a net basis, state-run banks, witnessing a surge in bad asset formation for the past two years, are likely to benefit from this.
"Bad loans at private banks are well contained and credit costs can start declining from FY16 onwards. State- owned banks, on the other hand, will continue to see elevated credit costs, given the amount of unprovided bad loan books they are carrying," the report said.
The BSE Bankex surged nearly 2 per cent to end at 13,826.73 today, led by stocks such as HDFC Bank and SBI.
