Banking sector in best of health in decades, says India Ratings
Premium- Key financial metrics are likely to continue to show improvement in FY23, backed by strengthened balance sheets and an improving credit demand outlook, India Ratings said
Mumbai: India Ratings and Research (Ind-Ra) on Thursday said it has revised the outlook on the overall banking sector for FY23 to ‘improving’ from ‘stable’, as the banking system’s health is at its best in decades.
The improving health trend that began in FY20 is likely to continue into FY23, it said, adding that key financial metrics are likely to continue to show improvement in FY23, backed by strengthened balance sheets and an improving credit demand outlook.
The rating agency believes that while the tightening liquidity would push up interest rates, impacting treasury gains, it would at least partially offset in the short term as loans get repriced faster than deposits. Almost one-third of the system's loans are linked to external benchmark rates, it said.
India Ratings said it has marginally revised its credit growth estimates to 8.4% from 8.9% for FY22 and 10% for FY23. The growth will be supported by a pick-up in economic activity post Q1 of FY22, higher government spending on infrastructure and a revival in retail demand. The agency estimates gross NPAs at 6.3% and stressed assets at 8.7% for FY22 and at 6.1% and 7.6%, respectively, for FY23. The agency expects provisioning cost for FY22 at about 1.5% and 1% in FY23.
It estimates that capex would rise to about ₹7 trillion each in FY22 and FY23 from ₹5.5 trillion in FY21, based on a demand ramp-up by end-FY22 and a further pick-up in FY23 with an economic recovery. Ind-Ra expects leverage to start building in FY23 on account of a revival in capex, increased working capital demand due to a higher output, higher exports and commodity inflation.
MINT PREMIUM See All
“Ind-Ra also estimates ₹2 trillion of primary investments in focus sectors linked to the performance-linked incentive scheme (PLI). Most of this investment would be upfronted in FY22-FY23 so as to maximize the period for which the 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," it said.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!