News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

This article was first published 10 years ago
Home  » Business » India's plan to grant new bank licences to companies poses risks: S&P

India's plan to grant new bank licences to companies poses risks: S&P

By Suvashree Dey Choudhury
October 28, 2014 21:02 IST
Get Rediff News in your Inbox:

India's plan to grant new banking licences to companies could increase risks in the banking sector given the chance that new entrants could be lax about loan standards, Standard & Poor's said in a report on Tuesday.

The Reserve Bank of India (RBI) is cautiously opening up India's banking sector to companies. The RBI awarded two new licences in April after a gap of 10 years in a country where only one household in two has access to formal banking services.

The central bank will come out with fresh set of guidelines for companies applying for on-tap bank licences, or rolling applications that are assessed as they come, in the current fiscal year ending March.

"The sector's stability or risk appetite could be hit if any of the new players relax their underwriting standards or undercut prices to gain market share," said S&P.

The

rating agency also highlighted the risks from a prolonged weakness in Indian banks' asset quality, which could hurt economic recovery.

S&P said it expects gross non-performing loans to rise to 4.5 percent by the end of March 2015 from 4 percent in the previous year.

However, Indian banks fare better on potential economic risks compared with Brazil and China due to a conservative central bank, stringent capital regulations under Basel III, and moderate inflation-adjusted real estate prices, S&P said.

The rating agency recently upgraded the outlook for India's "BBB-minus" rating to "stable" from "negative", citing the prospect of government reforms.

Get Rediff News in your Inbox:
Suvashree Dey Choudhury in Mumbai
Source: REUTERS
© Copyright 2024 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.
 

Moneywiz Live!