Indian Bank Risk Eases as Economy Bolsters Profits, Study Shows

The risk to India’s banking industry had “moderated marginally” as profits rebounded in an improving economy, according to a report published by the central bank.

Net profit at the nation’s banks grew 11.4 percent in the year through March, compared with a 14 percent contraction a year earlier, according to the Financial Stability Report posted on the Reserve Bank of India’s website on Thursday. Bad loans, which the RBI projects to rise to the highest level in at least nine years in September, will ease by March, the report showed.

The South Asian nation’s macroeconomic environment had already demonstrated a “significant improvement” and is expected to strengthen further in coming quarters, the RBI said. India’s economy grew by 7.5 percent in the January-March period, faster than the previous quarter’s 6.6 percent rate.

While treasury gains, slower growth in operating expenses and writing back excess provisions had helped revive banks’ profit growth, concerns over asset quality still remain, according to the report.

The gross bad-loan ratio for the banking system rose 0.5 percentage point to 4.6 percent as of March 31 from a year earlier, the report showed. The ratio may increase to 4.8 percent of total lending by September before easing to 4.7 percent by March 2016 in a “baseline scenario,” according to the study.

The report measures risks to India’s banking system using a so-called banking stability map, which tracks factors including profitability, asset quality and liquidity.

The S&P BSE India Bankex Index, a gauge of 10 bank stocks, lost 1.1 percent this year. State Bank of India, the nation’s largest lender, slumped 15 percent and ICICI Bank Ltd. dropped 11 percent. The benchmark S&P BSE Sensex Index gained 1.4 percent.

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