Banks to see 10% credit growth in FY23: Ind-Ra

After witnessing single-digit growth in recent years, the banking sector is likely to witness a 10% credit growth in FY23 on the back of a pick-up in economic activity, higher government spending in infrastructure sector and revival in retail demand, India Ratings and Research said in its banking sector outlook for the next fiscal. The rating agency, however, revised downwards its banking sector credit growth estimate for the current fiscal to 8.4% from 8.9%.

Companies will likely start leveraging in the next fiscal because of revival in capital expenditure, increased working capital demand due to higher output, higher exports and commodity inflation, the agency said. It expects Rs 2 lakh-crore primary investments in sectors linked to the Performance-Linked Incentive (PLI) scheme. “Most of this investment would be up-fronted in FY22-FY23 so as to maximise the period for which benefits could be availed by corporates. This could further boost secondary investments. Overall, the bank credit growth to the corporate segment could be around 8% YoY in FY23,” said Karan Gupta, director of financial institutions at India Ratings.

Lenders are likely to see improvement in the asset quality in FY23. As per India Ratings, gross NPAs of banks will likely improve to 6.1% by the end of the next fiscal, lower than estimated GNPAs of 6.3% as on March end. The stressed asset ratio in the retail asset segment is expected to almost double to 5.7% at March-end from 2.9% last year, while for the MSME segment, it could increase to 15.8% from 11.7%.

“Corporate segment’s stressed assets would slightly drop in FY22 to 10.4% from 10.8% in FY21 on account of recoveries from a couple of large accounts and ongoing recoveries and upgrades in other smaller accounts. For FY23, the agency expects stressed assets in retail to decline to 4.9% on account of recoveries, to increase to 16.7% for MSMEs on account of continuing stress in the segment and to decline to 10.3% for corporates on account of a continuing trend of recoveries. The analysis here does not factor in write-offs from GNPAs,” the report said.

Owing to the higher credit growth, healthy capital position and improvement in bad loan position, India Ratings has revised the FY23 outlook for banks to ‘improving’ from ‘stable’. Large private banks will likely continue gaining market share across assets and liabilities, the agency said, adding that old public sector banks will have to be more cautious on the asset quality as they have a larger proportion of small and medium enterprises loans.

from Banking & Finance – The Financial Express https://ift.tt/OIhx2rT