Standard & Poor’s takes a dim view of Indian banks

All won’t be well with India’s banks until after next year at the earliest.

U.S. credit rating agency Standard & Poor’s said Indian banks are likely to have a disappointing fiscal 2013 ending March 31 because of slower growth in India’s economy, rising levels of bad debts and stagnating credit growth.

Credit growth is likely to drop to 16% to 17% in fiscal years 2012 and 2013 from some 23% in fiscal year 2011. S&P also expects net interest margins to remain tight in fiscal 2013 due to tougher competition exacerbated by low credit growth and higher interest rates that tax borrowers’ abilities to repay.

An S&P analyst said the asset quality of Indian banks is likely to remain weak, or even deteriorate, due to the moderation in economic activity, high inflation and high interest rates.

The ratings agency expects restructured loans to rise in fiscal years 2012 and 2013. Small and midsize companies are particularly vulnerable to the business slowdown.