Construction of highways and power plants hit; banking sector to be affected as loan defaults set to rise

New Delhi : New Delhi August 29, 2011:The paralysis in the government has hit the implementation of infrastructure projects, such as the construction of highways and power plants, which are required to boost the country's economic growth rate. The holding up of these projects has serious financial implications for the country's banking sector as well since it could lead to more defaults in loan repayments.

"Delays in the implementation of infrastructure projects, increased cost of raw material linkages, such as coal and growing exposure to state electricity utilities with weak credit profile are expected to lead to an increase in the non-performing assets (NPAs) of Indian banks," said the latest report by Fitch Rating. Fitch Ratings says that the growing concentration risk of Indian banks could result in more volatile non-performing loan (NPL) ratios than those seen during the last 10 years.