Thomson BankWatch, headquartered in New York, is the largest bank rating agency in the world.

Six public sector banks, including the State Bank of India, Bank of Baroda and Corporation Bank have been assigned LC2 ratings -- the highest rating given to any Indian bank. No bank operating in India has got an LC1, the highest rating.

The rating agency has assigned LC3 (investment grade) ratings to seven public sector banks and 14 private banks, while LC2 ratings have been assigned to six public sector banks and five private banks. All the new private sector banks, except Centurion Bank and Global Trust Bank (GTB), have been assigned LC3 ratings. Centurion Bank and GTB have been assigned LC2 ratings.Thomson BankWatch has rated 48 banks in all.

The two private sector banks that have been assigned LC4 ratings are Catholic Syrian Bank and Bank of Rajasthan.

Thomson BankWatch has expressed concern over the alarming rise in the level of non-performing assets (NPAs) of Indian banks. According to the rating agency, the non-performing assets (NPAs) level of the banking industry is far higher than that shown by the Reserve Bank of India.

According to officials at Thomson BankWatch, which specialises in credit ratings of banks and financial institutions, though the RBI has pegged the NPA levels of banks at 18 per cent of net advances (Rs 43,000 crore), the actual level could be much higher. "It is a fact that banks resort to `window dressing' of their loan assets through restructuring and rescheduling to camouflage their actual asset quality problems," said a senior rating official with the rating agency.

Thomson BankWatch has, however, said that the 70 per cent level of NPAs estimated by Standard & Poor'swould seem "very high" as this would translate into declining net interest income and lower profits for banks, while actual net interest income and profit levels continue to grow across the sector.

S&P officials, at a recent seminar in Mumbai, estimated the NPA levels of the Indian banking system at close to 70 per cent.

The rating agency has pointed out that Indian asset classification norms remain lenient and if more stringent international norms were applied, banks' asset quality would only worsen.

Thomson BankWatch has, however, said that the chances of an Asian-style flu affecting India directly seem remote. "Unlike most south-east Asian countries, exposures of Indian banks and corporates towards real estate and the stock market are minimal and the risk of transmission of an Asia-style crisis to India through this route remains minimal," the rating agency says.

While one major issue looming large for all Asian banks is their preparation with regard to the Year 2000 (Y2K) issue, the late adoptionof computers by Indian banks has saved them from being seriously affected by the problem of the millenium bug.

"Indian banks are still not offering high-tech products and services like debit cards and insurance policies, and hence the Y2K threat appears much lower compared with other developed or technologically-advanced countries," Thomson BankWatch said.

Banks must be penalised for window-dressing bad loans:

The fact that Indian banks have higher NPA levels than they report is widely known, but it is only recently that the Reserve Bank of India and rating agencies have made public their respective assessments. The central bank's report was shocking in the sense that banks widely considered to be safe such as HDFC Bank were reported to have gross NPAs of 7.5 per cent. The banks have, however, disputed these figures released by the RBI. But reality is that the true NPA level is far higher than the 18 per cent estimated by the banking sector. Instead of agencies such as Thomson BankWatchspeculating on the NPA levels, banks should be forced to follow international asset-classification norms and be penalised for window dressing.