MUMBAI: India Ratings and Research (Ind-Ra) has revised its outlook on the overall banking sector to stable for FY22 from negative.
This is because substantial systemic measures have reduced the system-wide Covid-19 linked stress below the expected levels, it said adding banks have also strengthened their financials by raising capital and building provision buffers.
Ind-Ra upgraded its FY21 credit growth estimates to 6.9 per cent from 1.8 per cent and 8.9 per cent in FY22 with improvement in economic environment in 2H FY21 and the government's focus on higher spending, especially on infrastructure.
The agency estimates gross non-performing assets (GNPAs) at 8.8 per cent in FY21 and stressed assets at 10.9 per cent. Provisioning cost has fallen from its earlier estimate of 2.3 per cent for FY21 to 2.1 per cent (including Covid-19 linked provisions) and is estimated at 1.5 per cent for FY22.
Ind-Ra said the regulatory changes led to an improvement in public sector banks' (PSBs') ability to raise AT I capital, a high provision cover on legacy NPAs, overall systemic support resulting in lower-than-expected Covid-19 stress, and minimal surprises arising out of amalgamation of PSBs.
Also, the fact that the government has earmarked Rs 34,500 crore for infusion in PSBs in 4Q FY21-FY22 should suffice for their near-term growth needs.
Private banks continue to gain market share both in assets and liabilities while competing intensely with PSBs. Most have strengthened their capital buffers and proactively managed their portfolio.
As growth revives, said Ind-Ra, large private banks will benefit from credit migration due to their superior product and service proposition.
Ind-Ra estimated that about 1.24 per cent of the total bank book is under incremental proforma NPA and about 1.75 per cent of the total book can be restructured by end-FY21.