Credit costs for PSU banks to remain high
The bad news for public sector banks is not over. A latest study from India Ratings and Research, a Fitch group company, shows that scarcity of capital could pull down the loan growth trajectory for public sector banks to nine percent CAGR over FY16 to FY19. For the previous four years of FY12 to FY15, growth for these state-run banks was around 12.2 percent CAGR, India Ratings analysts said.
This (nine percent) growth is the bare minimum they will need to generate sufficient spreads to absorb expected operating and credit costs for these banks over this period, the study shows. Most of India’s state-run banks are struggling with rising bad loans, weak fund raising capacity and poor valuations. This is why we see a scenario where -- barring a few strong public sector banks -- most state-owned banks are looking towards consolidation of balance sheets and preserving capital.