Indian two thousand rupee banknotes. (Photographer: Dhiraj Singh/Bloomberg)

Indian Banks’ Profitability Weaker Than BRICS Peers, Says Moody’s

Moody’s Investors Service today said that the profitability of Indian banks is “distinctively weak” compared with those in the association of five major emerging national economies: Brazil, Russia, India, China and South Africa.

The rating agency, however, said that the profitability will improve from next fiscal as asset quality stabilises. Moody’s said capitalisation is the weakest for Indian banks with a tangible common equity ratio of 8.7 percent at the end of 2017.

“System-wide asset quality in India is weak due to stressed public sector banks, which dominate the sector,” it said. “Government capital infusions will boost weak public sector banks’ capital ratios.”

“The system as a whole is unprofitable due to high credit costs at dominant state-owned banks,” Moody’s said, adding the profitability is distinctively weak for Indian banks than others in the five-nation BRICS bloc.

Indian banks, despite having a similar level of pre-provisioning profitability to Chinese banks, have a negative return on assets because of high credit costs at public-sector banks, which dominate the system. Their profitability will remain under pressure for the rest of the current fiscal year, which ends in March 2019, as provisions for credit losses will remain large.
Moody’s Investors Service.

Brazilian and South African banks have the highest return on assets, according to the report.

The Moody’s report on banks in BRICS countries said Indian lenders had the second highest non-performing loan at 2017-end, followed by banks in Brazil, South Africa and China. Russian banks had the highest ratio of 11.8 percent.

Brazilian banks had an non-performing loan ratio of 3.5 percent at the end of 2017, compared with 2.9 percent for South African banks and the lowest of 1.5 percent for Chinese banks.

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