Most Indian banks resilient to rising asset quality stress: Fitch

Indian banks are expected to face sustained asset quality weakness over the next few quarters, although most have a reasonable buffer to withstand increased stress.

In its  2013 Outlook series on Indian banks, 2013 Outlook: Indian Banks, NPLs to Rise: Stress Test Highlights Largely Intact Core Equity, Fitch said it expects the banking system's gross non-performing loans (NPL) ratio to reach 4.2 per cent in the financial year to March 2013, up from a previously estimated 3.75 per cent.

"Asset quality is likely to remain under pressure at least for the next three to four quarters, particularly from the infrastructure sector in which banks' exposures are concentrated," the ratings agency said in a statement.

It also said that it believes that bulk of the stress in infrastructure resides in restructured assets and will not be visible in the reported NPL numbers where pressures are largely cyclical.

Restructured assets in FY12 were significantly higher than during the last restructuring exercise in FY09. Fitch believes that stressed assets (including restructured assets) for the system were likely to exceed the agency's 10 per cent estimate for FY13.

Infrastructure remains a key industry for the Indian government, whose support to a large extent mitigates the viability risk for many such projects and may limit eventual credit losses.