Moody’s expects rates to rise in next 12 mths

Moody’s expects rates to rise in next 12 mths
The Economic Times, July 17, 2009, Page 12

Our Bureau MUMBAI

RATINGS firm Moody’s expects interest rates to rise in the next 12 months, which will in-turn put pressure on banks profitability. The global ratings firm also expects non-performing loans to rise from the third quarter of the current fiscal.

Speaking to ET, Nondas Nicolaides, vice-president/senior analyst, Moody’s, said: “Interest rates, in the medium-term, they may start inching up and this may put some pressure on banks’ margin. This is because deposits start rising faster than the lending rates in India.”

But he also added that there may not be a significant pressure on their bottomline. Banks could manage this as they are focused on reducing their costs and tapping low-cost funds like current and savings accounts (CASA), salary accounts and lowcost deposits. “These may alleviate pressures on their margins,” said Mr Nicolaides.

Moody’s expects banks credit to grow at around 15-16% in FY10, given the projected GDP growth of 6%. According to Deborah E Schuler, senior vicepresident/regional credit officer, financial institutions (Asia), Moody’s, with the exception of China, other like Singapore and Hong Kong are seeing a contraction in loan book.

However, the major challenge facing Indian banks in the current economic environment is the asset quality and non-performing assets (NPAs). Gross NPAs, in the export oriented sectors like textiles, gems and jewellery, auto parts and retail, among others, have started to show up, noted the Moody’s official.