Date:12/09/2007 URL: http://www.thehindubusinessline.com/2007/09/12/stories/2007091252170600.htm

Back Banks need to tone up risk management

Right strategy must to sustain growth: S&P report

Our Bureau

Mumbai, Sept 11 Strong credit growth with weak risk management is a problem for the Indian banking sector. While the sector is expected grow for the next several years, there are still weaknesses that need to be addressed, said a report published by Standard and Poor’s Ratings Services.

According to the report, the Indian economy grew at an average of 8.6 per cent for the past four years. In the medium term, the growth rate is expected to be close to 7.5 per cent.

The report quoted Standard & Poor’s credit analyst, Mr Ritesh Maheshwari as saying, “The country’s business environment benefits from higher consumption and private investment demand, due to a growing middle class and favourable demographics.”

The banking reforms have gradually tightened operational, prudential, and accounting standards, putting banks mostly in line with international benchmarks, Mr Maheshwari said.

The overall credit quality of the banking sector has improved considerably in the past five years. This was mainly due to good economic prospects and healthy earnings in the past three to four years.

The banking sector has also benefited from increased use of marketing and technology. But it continues to be highly fragmented, with 53 domestic banks accounting for about 93 per cent of the system’s assets.

It is, therefore, necessary for the banking industry to increase the pace of consolidation and put in place an efficient risk management system, while closely monitoring the potential for increased problematic assets, he said.

“. Increasing the pace of consolidation and providing the sector with an efficient risk management system, while closely monitoring the potential for increased problematic assets, should form the basis of such a strategy,” Mr. Maheshwari noted.