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Indian Banks operating environment stronger
August 17, 2023
Indian banks’ operating environment has strengthened as economic risks associated with the COVID-19 pandemic have ebbed and as lenders have built appropriate buffers against potential stress, Fitch Ratings said on Wednesday.
“A number of prudential indicators for the sector have also improved compared with pre-pandemic levels, though growing risk appetite in a relatively benign OE (operating environment) highlights the importance of appropriate buffers against potential stress,” the rating agency said in a note.
With Indian banks shoring up their capital buffers and cleaning up their balance sheets following the pandemic, their gross non-performing asset ratio has fallen to a 10-year low of 3.9% as of March 2023.
The strengthening of capital buffers, Fitch noted, has boosted the sector’s average common equity Tier 1 capital ratio to 13.4% at the end of fiscal 2023, from 10.4% at the end of fiscal 2018.
Earnings buffers at banks also appear “significant,” the rating agency said.
India’s large economy and favourable demographics should offer banks opportunities to generate profitable business and diversify risk and revenue, Fitch said.
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