Public as well as private banks are expecting deterioration in performance on key parameters, including credit growth and net interest, due to increasing asset quality pressures and the effect of stricter regulatory requirements, as per a fresh survey by Confederation of Indian Industry (CII).

The CII surveyed a total of 15 banks, including five public-sector banks, three private sector banks and seven foreign banks, and found that all the participants expecting deterioration in credit growth, profit-after-tax
(PAT), return on equity and net interest income in 2012-13.

The banks added that their financial health would have to suffer bigger pressure because of stricter regulatory requirements. Since the global financial crisis, the regulatory environment for banks has become harsher across the globe.

Chandrajit Banerjee, director general of CII, said, "Even as growth, inclusion and stability have been the key focus areas in the Indian context, the current regulatory and policy environment is critical to ensure that banks remain financially sound and profitable."

Basel-III norms, which will take effect in an implemented manner in India from April 1, will force banks to hold core capital of at least 7% of risk weighted assets by the year 2018.

Besides harsher regulatory requirements, banks foresee deteriorating asset quality as one of the biggest challenges hitting their profitability. Banks' non-performing assets (NPAs), which hit its highest level in the last six years at the end of March last year, is expected to worsen with a considerable increase in restructured loan accounts.