Prospects for Indian banking subdued in 2014: S&P

The growth, profitability, and asset quality of Indian banks are likely to remain subdued in the next 12 months, despite a likely improvement in economic growth.

This  is because of the time lag between the improvement in the economic environment translating into improved performance for corporate borrowers.

In a a report, India Banking Outlook 2014: Little Respite In Sight, released today, Standard & Poor's Ratings Services'  credit analyst Amit Pandey said, "We expect weakness in banks' asset quality to persist for the next 12 months because the economic recovery is likely to be tepid, and it will take time for the domestic industry to recover and corporate balance sheet leverage to decline," said Standard & Poor's.

Indian banks will need sizable capital to support growth and meet Basel III requirements, the report noted.

Rated private-sector banks are better placed than their public-sector peers in terms of meeting Basel III capital requirements.

Public-sector banks will have to rely on a combination of government capital infusion and equity markets to support their capitalization.