We view the loan classification (more particularly with regards to restructured loans) and provisioning practices in India as weak and we believe they mask the extent of the banks asset quality and capital challenges, the agency said in a special report on the Indian banking sector.
Moodys predicts that both NPAs and restructured loans will rise further for banks. It has maintained its outlook on the banking system as negative. Most Indian banks, especially in the public sector, have seen a sharp rise in bad loans over the last one year, apart from being saddled with a huge restructured portfolio as weak economic growth and high interest rates hit debt servicing capacity of companies. It said the true picture of Indian banks asset quality can be seen only if restructured loans are combined with NPAs.