Indian banks are most at risk in South and SE Asia, Moodys says

Key Highlights: 

• Indian banks most vulnerable in South and Southeast Asia
• Moody's says result from a poll in Hong Kong and Singapore 
• Indian banks are underfunded, the poll said

Global ratings agency Moody's on Wednesday said that Indian banks remain most at risk in South and Southeast Asia. The agency has revised the outlook on several Indian banks to stable or negative from positive on 24 July, signaling a lowering in potential government support under our Joint-Default Analysis (JDA) model, and/or weaknesses in solvency metrics.

Moodys's said, "We agree that many banks in India remain undercapitalised and continue to lack sufficient loan-loss provisions. Moreover, the government has appeared reluctant to increase capital injections into the public sector banks, despite the limited ability of these banks to access equity markets for much-needed capital."

Moody's said that the results were a finding of a poll it conducted of market participants in Hong Kong and Singapore. 

"Moody's itself is also of the same opinion and we had revised our outlook for APAC banks to stable from negative in early July to reflect easing risks to banks' asset quality as macroeconomic conditions turn mildly
positive in the region and commodity prices broadly stabilize," says Eugene Tarzimanov, a Moody's Vice President and Senior Credit Officer.

On India, the poll said, "Near 70% of the respondents in Hong Kong picked India's banking system as the most vulnerable among seven systems in South and Southeast Asia. In Singapore, 44% of the respondents chose India and a quarter of the votes went to Indonesia."

"We agree that many banks in India remain undercapitalized and continue to lack sufficient loan-loss provisions. Moreover, the government has appeared reluctant to increase capital injections into the public
sector banks, despite the limited ability of these banks to access equity markets for much-needed capital," says Tarzimanov.

As a result, Moody's had revised the outlook on several Indian banks to stable or negative from positive on 24 July, signaling a lowering in potential government support, and/or weaknesses in solvency metrics.

Must read: 

Here's how banks can save themselves from NPA stress

Banking stocks happy with recapitalisation of Rs 10,000 crore in Budget 2017

Banks would have to wait more before seeing revival in asset quality