Gupta says challenges emanate from performance of restructured loan book
Retail and MSME segments are expected to drive banking credit growths, partially by co-lending arrangements with non-banking finance companies (NBFC)s, according to ICRA Ratings which expects outlook for banks to be ‘Stable’ in FY2023.
The stable outlook for NBFCs is based on continued improvement in earnings driven by improved credit growth of 8.9-10.2% in FY2023 (8.3% for FY2022e & 5.5% in FY2021) and decline in credit provisions.
Growth will also be supported by demand shift from debt capital market to bank credit, in a rising yield scenario as was seen in FY2019, said the agency in a report on 5 Apr 2022.
Treasury income will decline materially during FY2023 in a rising bond yield scenario, despite this, the return on assets (RoA) is estimated to improve, supported by improved credit growth and decline in credit provisioning as legacy net stressed assets continue to decline.
Credit and other provisions are estimated to decline to 1.3-1.4% of advances in FY2023 as against estimated 1.7-1.8% in FY2022, ICRA Vice President Anil Gupta said.
“While there are positives, the deposit growth it is expected to slowdown to 7.3-7.9% in FY2023 (8.3% in FY2022e & 11.4% in FY2021).”
“In terms of asset quality, the gross non-performing advances are expected to decline to 5.6-5.7% by March 2023 as against estimate of 6.2-6.3% by March 2022 while the net non-performing advances will decline to 1.7-1.8% as against estimate of 2.0% by March 2022.”
Earnings-wise, the RoA and RoE for public banks (PSB)s, will remain steady at 0.5-0.6% and 8.6-9.6% respectively for FY2023 (0.5-0.6% and 8.1-9.0% estimated for FY2022); for private banks (PVB)s they are likely to be steady at 1.3% and 10.8-11.1% respectively for FY2023 (1.2% and 10.5% estimated for FY2022) despite moderation in treasury income.
In terms of regulatory and growth capital requirements, PSBs will be self-sufficient in FY2023 while the incremental capital requirement for PSBs too are estimated at less than Rs.100 billion.
Credit growth will reduce liquidity surplus in the banking system to Rs.1.5-2.5 trillion, in addition, RBI may also suck out surplus liquidity.
The growth drivers will be strong corporate credit ratio, tightened underwriting in retail and MSME segments; reducing bounce rates and improving collections.
Said Gupta, “For the sector, challenges emanate from performance of restructured loan book which poses uncertainty to asset quality as these loans exit moratorium.
“Also, Russia-Ukraine conflict poses macro-economic challenges related to cost inflation, higher interest rates and exchange rate volatility, this could pressurise asset quality. Elevated level of overdue loans in retail and MSME segments post-Covid also remain a concern.” fiinews.com
