India’s banking sector maintained its negative rating by Fitch. Fitch reinstated that financial standing remained”fragile”without large capital infused into the economy.The agency also suggested that the government’s decision to declare Rs.500, Rs.1000 as illegal tender is an influential topic.The demonetization move is suggested to engender mixed outcomes.
Fitch Ratings expressed that the government’s move towards an astounding Cash- clean up will undoubtedly contribute to a transformational reform of the Indian banking sector. According to economists,deposits will rise to a whopping 9lakh crores ,causing the lenders to eventually lower interest rates and lower tax rate.However, massive uncertainity exists as to the impact of Demonetisation on the banking sector.Largely because of baffling counter-actions taken by the public borrowers. The borrowers who banked upon cash to service their loan are most likely to suffer. There is absolutely no guarantee that the cash which has been deposited in the banks,may be withdrawn at a rapid pace very soon.
Earlier,Fitch had estimated that Indian banks would need about $90 billion in total capital by March 2019 to meet global Basel III banking rule. Gradually,it said 80 percent of those capital requirements would arise in the next two financial years.The ratings agency expects additions to bad loans to slow, although high loan-loss provisions for both new and old non-performing loans would keep profits under pressure. Owing to”under-capitalisation”of multitude of banks and sluggish investment demand,India’s banking sector shall be consistent with mixed impact of the demonetization move. .”Clearly the urgent need of the hour is capital,” Fitch analyst Saswata Guha told a media conference.
Fitch also said ,”Here is nothing to prevent them being withdrawn again. Finally, there are other factors holding back lending, most notably the under-capitalisation of state-owned banks and weak investment demand”.The agency also believes that due to improvement in government finances, India’s sovereign credit profile would highly be benefitted.
