Indian banks more stable but capital-raising will be a key theme as asset-quality pressures gradually stabilise and banks look to revive credit growth in support of a recovering GDP outlook, said Fitch Ratings.
However, there will be challenges for state-owned banks in particular, given weak core capitalisation and expectations of slow earnings recovery due to high credit costs.
Fitch said, "The state banks' large stressed asset stock should remain an overhang on banks' equity valuations for the foreseeable future, although the state's expected capital injection will provide a critical buffer for the near term."
Also, the rating agency expects the banks will have to conduct much more capital raising to pursue sustainable growth rates while achieving Basel III requirements and cushioning balance-sheet stress at the same time.