Indian banks to see rise in bad loans: Fitch

Despite a significant improvement in asset quality, the country's banking industry might see its bad assets inching up in the months ahead, particularly in retail segment, global rating agency Fitch said.

The loan growth which moderated into 24 per cent in last fiscal is expected to be in the range of 18-20 per cent in FY 09, Fitch Rating's Senior Director, Ambreesh Srivastava said at a global banking conference.

"The absolute NPLs rose in FY08 after declining for several years...We would expect that the NPLs, especially in unsecured consumer lending, could now start inching up," Srivastava said.

Rising bad loan assets had prompted many banks to sell their sticky assets to asset reconstruction companies, in order to transfer the risk and clean up their balance sheets.

A few banks had also discontinued their small ticket personal loans reportedly owing to the rising defaults and are reworking loss assumptions on credit cards, Srivastava said.

Besides, despite an improving credit culture and risk management systems, Net Interest Margin (NIM) of Indian lenders remained under pressure, he said, however, adding "those banks with larger proportion of low-cost deposits have been found less affected."

Fitch Rating's Asia Pacific, managing director, James McCormack, said the agency would review the existing 'BBB-' in the third quarter, given the rising pressure on fiscal side and the widening fiscal deficit owing to "populist spending" of the government.