According to a recent press report, industry chamber Ficci has said that SBI’s credit rating downgrade by Moody’s is likely to have far reaching implications on the Indian banking system as bad debts are expected to rise on account of high interest rates.
Ficci has said that the slowing growth, high inflation and interest rates, squeeze in margins and risks from foreign borrowing have together added pressure on Indian banks.
Reports said that the RBI had hiked policy rates 12 times since March 2010 in order to control inflation and Corporate India has said that high cost of borrowing would slow project investment and delay loan repayment. It also said that the bad debts of the Indian Banks are rising because of the high interest rates.
According to Ficci reports the growth in non-performing assets (NPAs) as a percentage of banks’ loan portfolio was almost at a five-year high in the first quarter of the fiscal. It said that there are chances for the situation to become worse as banks are planning to restructure loans that borrowers are finding difficult to service because their businesses have been affected by a slowing economy.
The industry body said that the monetary and fiscal authorities need to work in tandem in addressing the concerns of the banking sector.