Nov. 9, 2009 (The Hindu Business Line) --

Mumbai, Nov. 9 Indian banks’ reported profitability would be suppressed in fiscal year 2010 (ending March 2010) and fiscal 2011 as they set aside profits to comply with the higher provision levels prescribed by the Reserve Bank of India, said Standard & Poor’s Ratings Services.

At the industry level, S&P expects this change in coverage requirement, along with expected increase in non-performing loans, to lead to provisioning charge in fiscal 2010 and six months ended September 30, 2010 of about Rs 71,600 crore, of which Rs Rs 21,000 crore alone will be due to the higher specific coverage requirement.

However, the impact on profitability may be subdued if the RBI extends the September 2010 deadline or if it allows banks to include technical loan write-offs as part of the provisions.

The impact on profitability may also be subdued if the banks reduce the extent of write-off and replace it with provisioning instead.

According to S&P’s credit analyst Mr Ritesh Maheshwari, the RBI’s move to tighten provisioning norms is a step in the right direction and the move is likely to enhance the soundness of individual banks and correctly anticipate a rise in credit losses, which are currently understated.