Slow growth, bad debt will force banks to cut rates: CRISIL

Stressed borrowers and slow credit growth will force commercial banks to yield to pressure from the central bank and do more to pass on lower policy rates, analysts at domestic ratings agency CRISIL said on Tuesday.

The Reserve Bank of India has cut the repo rate by 50 basis points in two moves since January, to 7.5 per cent.

But so far, citing the high cost of funds, banks have only trimmed their own lending rates, with the country's largest bank, State Bank of India, cutting just 15 basis points.

"There is limited ability (in banks) to hold on," Rajat Bahl, director at CRISIL Ratings, said during a teleconference on the outlook for India's banking sector.

"Given that borrowers are also (under) stress, to see growth and to see the borrowers remaining stable, they will have to pass on the benefits of the (lower) interest rates."

The country's banks have struggled under the weight of bad loans, and Bahl said lower lending rates could help tackle that, as fewer borrowers would end up in trouble.

CRISIL expects total stressed assets, which include non-performing loans and those that could turn bad, to rise to Rs 5.3 trillion ($82.57 billion) by March 2016, from Rs 4.7 trillion in the previous year.

"Definitely, pain is likely to persist. There are steps being taken both by regulator and the government, but we believe it is going to take some time before they play out," Bahl said.

($1=64.1850 rupees)

(Reuters)