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Fitch Ratings' outlook on the Indian banks sector is likely to remain negative until the banks address their weak core capital positions against mounting bad debt and poor financial performance, says Fitch Ratings.
The capital position of state banks is most at risk, with the core capital ratios of 11 of India's 21 state banks below the 8% common equity Tier 1 (CET1) regulatory minimum that comes into place at financial year-end March 2019 (FYE19). Banks' credit costs rose sharply following regulatory changes aimed at accelerating bad-loan recognition and led to losses that cumulatively eroded nearly all of the $13bn in government capital injected in FY18, adding to capital positions which were already weak. Loan growth improved to 10.4% in FY18, from 4.4% in FY17. This improvement was shouldered by a few large banks, and sustaining the growth momentum will be difficult without adequate capital replenishment.
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