"We no longer expect the corporate sector to recover in fiscal 2014 (ending March 31, 2014), given slower-than-expected GDP growth, heightened currency volatility, and high interest rates," S&P said.
The rating agency said that the banking sector's nonperforming loan (NPL) ratio may surge to 3.9 per cent of total loans in fiscal 2014 and to 4.4 per cent in fiscal 2015, compared with 3.4 per cent as of March 31, 2013.
S&P also lowered its outlooks on all the banks in India to negative outlook, citing deteriorating asset quality and earnings could lead to negative rating actions. It said that government-owned banks are at greater risk of downgrades because they have a high share of corporate and small and medium enterprise loans and relatively weaker risk management practices.
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