November 06, 2009

Rating agency Standard & Poor’s has said that banks’ profitability will be suppressed in fiscal year 2010 and fiscal year 2011 as they set aside profits to comply with the higher provision levels. S&P expects the provisions charged to the profit and loss statements in fiscal 2010 and 2011 together to be about Rs 94,500 crore, of which Rs 71,600 crore will have to be set aside as provision until September 2010.

However, the ratings agency added that the impact on profitability may be subdued if RBI extends the September 2010 deadline or if it allows banks to include technical loan write-offs as part of provisions. “The impact on profitability may also be subdued if the banks reduce the extent of write-off and replace it with provisioning instead” the report added.