(Reuters) – High leverage in the Indian corporate sector could prevent any meaningful recovery in asset quality at lenders over the next 12-18 months, Moody’s Investors Service said on Wednesday, maintaining its negative outlook on the country’s banking sector.
Moody’s estimated India’s corporate sector had an average debt-to-equity ratio of more than 3 times, and would need a stronger economic recovery than currently projected by the credit agency to bring down the leverage.
Poor asset quality will require continued provisioning and strengthened capital buffers, Moody’s said.
The agency said its negative outlook pertained mainly to state-owned lenders that account for more than 70 percent of banking assets.
Non-performing loans were at a three-year high, although new bad loans have peaked, Moody’s said.
Industry data has shown bad loans comprise around 4 percent of banking assets, while stressed loans, which include restructured loans, account for nearly 10 percent.
(Reporting by Devidutta Tripathy; Editing by Prateek Chatterjee)