The country’s largest lender, State Bank of India (SBI), on Tuesday said the banking system could face further stress on its asset quality, particularly in the manufacturing sector, as industrial production shrunk for the second straight month in November, by more than 2%.
“It will definitely aggravate the stress level,” said SBI managing director & group executive (National Banking) A Krishna Kumar, when asked whether the dismal IIP numbers would put additional stress on banks’ deteriorating asset quality.
“The IIP numbers do not give much confidence in the manufacturing sector… the stress level for the medium corporates and large SME clients is still there in the system. So, I cannot very confidently say that there is end of all those stress. It will definitely continue for some more time,” Krishna Kumar pointed out.
He said the stress in the manufacturing sector, especially the medium-size corporates, would continue.
The Index of Industrial Production (IIP) contracted 2.1% in November, the lowest in six months, on the back of poor performance of the manufacturing sector and lower output of consumer goods, particularly white goods.
Asset quality continues to be a major concern for the country’s commercial banks on the back of slowing down of the economic growth. The gross NPA ratio of the banking sector increased to 4.2% as at end September, 2013 from 3.4% of March, 2013. The restructured standard advances also increased to 6% of total advances as at end September 2013 from 5.8% of March, 2013, according to RBI data.
Krishna Kumar was, however, hopeful that by the end of this calendar year, the banking sector might find some improvement in asset quality.
“SBI and all the other banks are already taking into account all these factors and trying to identify all those accounts which are showing some signs of stress much in advance of they becoming NPA. And, hopefully, that will bear some positive results as we go on,” he maintained.
As retail inflation eased, the RBI is expected not to change its key lending rate going ahead in the short-term, Krishna Kumar said.“The latest CPI figures are down. So, looking to the fact there seems to be some moderation, I do not think that there would be much change (in the interest rate),” Kumar said. “I do not think much change in the interest rates going ahead in the short-term,” he maintained.
The consumer price