Unhealthy money owed should be a headache for India's state banks, asset supervisor says

The outlook for most of India’s state lenders remains “quite weak” despite extensive reforms in the banking sector, according to a senior asset manager.

While it is predicted that corporate asset quality for India’s public sector banks will improve from here on, the sheer volume of bad assets that they own puts a bit of a dampener on their future, said Rana Gupta, managing director for Indian equities at Manulife Asset Management.

“They still need to run out their coverage, so credit cost will still be high,” Gupta told CNBC’s “Street Signs” on Tuesday. Additionally, high managerial costs and low profitability would mean most of those banks are not generating capital, he said.

“Therefore, barring the top one or two state-owned banks, (for) the balance — the outlook still remains quite weak,” Gupta said. “In fact, we would expect, whenever the election is over and the new government comes in, if it’s a stable government, we’d expect more consolidation to follow.”

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