Indian banks on solid ground: Pranab

Moody`s, on Wednesday, downgraded outlook of the Indian banking system to `negative`, saying that slowing economic growth could dent the asset quality and profitability of the Indian banking sector. A `negative` outlook is one that is characterised by volatility and uncertain conditions, according to Moody`s.

Mukherjee said, "I was a bit worried and I spoke to Reserve Bank of India Governor, SBI Chairman and Banking Secretary, but was convinced that there was no problem in the banking system, which withstood the global financial fallout."

He said that perhaps the calculations of non-performing assets (NPAs) of Indian banks by Moody`s was not correct. "Calculations of NPA should have been done on 12 months basis rather than a particular period," Mukherjee said.

Mukherjee said another international rating agency S&P had said that there was no problem in capital structure of Indian banks and whatever NPA the banking system was carrying was part of a normal business cycle.

Giving the government`s view, Mukherjee said, Moody`s rating downgrade had sent a wrong message since the banking sector was the backbone of the Indian economy which could affect the growth of the country.

"The Indian banking system is well regulated. In this budget, I have committed Rs 8,000 crore for the Indian public sector banks, but the capital infusion is for meeting the Basel norms," he said.

Meanwhile, Moody`s will hold consultations with finance ministry officials next week as part of the exercise to review the country`s sovereign rating.

Giving the rationale for its action, Moody`s had said, "For those banks with weaker capital ratios on average and higher asset quality pressures relative to their individual rating levels, their standalone ratings are likely to come under pressure."

Non-performing assets of state-owned banks have increased to 2.31 per cent of their assets at the end of March 2011, from 2.27 per cent in the year-ago period.