8216;Banking sector8217;s growth to remain high8217;

India's banking sector will continue to show high growth,Standard amp; Poor's said.

Despite intense competition and high inflationary pressures,India8217;s banking sector will continue to show high growth owing to the country8217;s strong economic expansion,credit rating agency Standard amp; Poor8217;s Samp;P said today.

8220;Growth in India8217;s banking sector will remain high,bolstered by sound economic growth prospects8230; We expect credit growth of about 20 per cent in the next fiscal year,8221; Samp;P said.

The growth in banking would happen despite high domestic inflation and intense competition in the sector,it added.

The ratings agency said that India8217;s banking sector had weathered the global financial slowdown on the back of a robust economy,a stable retail deposit base and a prudent regulatory environment.

However,Samp;P said that the asset quality of the Indian banking sector came under some pressure in the fiscal year ended March 31,2010.

8220;The gross non-performing loans NPLs for our portfolio of rated Indian banks increased to 2.5 per cent as of March 31,2010,from 2.2 per cent a year ago. This was in line with our expectations,8221; the ratings agency said.

It added,however,that the increase in NPLs was contained by the quick economic recovery,modest leverage and low sectoral concentration in the banks8217; loan books. Besides this,the banks had low exposure to sensitive sectors.

Story continues below this ad

The NLPs were also reined in because of the one-time dispensation by the Reserve Bank to restructure loans without classifying them as NPLs on meeting certain criteria,it added.

8220;Slippages loans moving to NPL from restructured loans were 5-20 per cent in the six months following the completion of the restructuring exercise in June 2009,8221; Samp;P said.

However,looking ahead,it forecast: 8220;We expect 25-50 per cent of the restructured loans to slip to NPL in the next two years.8221;

The ratings agency said that it expects credit growth to continue to exceed nominal GDP for the next five years.

Story continues below this ad

Samp;P said that going forward,the impetus for overall credit growth is expected on account of 8220;India8217;s low credit penetration,large-scale infrastructure investments,companies reconsidering large acquisitions,and revived demand for working capital and capital expenditure8221;.

It said that secured retail credit will also pick up moderately due to an increase in auto and housing sales,attractive interest rates,and improved job security.