Indian banks to face 'sharp increase' in restructured loan volumes

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Indian Banks will face a "sharp increase" in the volume of restructured loans due to their exposure to infrastructure projects and the struggling aviation and power sectors, said Fitch Ratings in a research note.

A weakening operating environment in India is likely to "push up" non-performing loans in 2012, Fitch noted.

However, the ratings agency believes India's planned capital injection into the State Bank of India (SBI) provides a "judicious boost to the group's balance sheet in the face of rising non-performing loans".

SBI reportedly has the greatest loan exposure to Kingfisher Airlines with loans of Rs 14.577 billion ($296 million) to the struggling carrier. The bank's chairman has publicly declared Kingfisher Airlines is in default.

While the government injection should take SBI's core Tier 1 ratio to just above 8%, Fitch believes a further capital increase is likely "in order to bring the bank at least into line with other government-controlled lenders."