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Profitability of Indian banks ‘distinctively weak’ compared to BRICS nations: Moody's
Oct-23-2018

Expressing cautiousness over Indian banks’ profitability, global rating agency Moody’s Investors Service in its latest report has stated that the profitability of Indian banks is ‘distinctively weak’ compared to those in BRICS nations. Though, it also said that the profitability will improve from next fiscal as asset quality stabilises. On capitalisation, Moody's said it is the ‘weakest’ for Indian banks with a tangible common equity ratio of 8.7% at the end of 2017.

The report explained that system wide asset quality in India is weak due to stressed public sector banks, which dominate the sector. Government capital infusions will boost weak public sector banks' capital ratios. It added that the system as a whole is unprofitable due to high credit costs at dominant state-owned Indian banks and the profitability is distinctively weak for Indian banks than others in the five-nation BRICS bloc. By contrast, Brazilian and South African banks have the highest return on assets (ROA).

Moody's said Indian banks have a negative ROA because of high credit costs at public sector banks, which dominate the system, despite having a similar level of pre-provisioning profitability to Chinese banks. 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. It also said Indian bank's profitability will improve from the next fiscal year as asset quality stabilizes.

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