There will be strong credit growth in banking sector next year, says ICRA
NEW DELHI: Revising its outlook on the Indian banking sector to Positive, credit rating agency ICRA on Monday said it expects strong credit growth and improvement in asset quality of banks next year.
The incremental credit growth of banks is expected to reach an all-time high of Rs 18-19 lakh crore in the financial year 2023, said a senior official.
“With the impact of COVID ebbing, the credit growth has witnessed a strong rebound, which should continue giving us a strong credit growth while the persistence of tight liquidity may slow credit growth in FY24. We believe credit expansion should remain meaningfully strong,” said Anil Gupta, Senior vice president & co-Group head of ICRA, addressing a webinar on the banking sector.
“Incremental credit growth in FY2023 is expected to remain at an all-time high of Rs 18-19 lakh crore in FY2023, which will be significantly higher than the previous high of Rs 11.4 lakh crore in FY2019. Further, the growth momentum is expected to remain strong in FY24 as well, even though rising interest rates and tight liquidity conditions could moderate the growth,” he added.
The headline asset quality and profitability metrics are likely to be the best witnessed during the last decade. “We expect the banking sector, GNPA and net NPA to come close to 4% and 1% respectively, by March 2024, which will be a decadal best,” he added.
According to the rating agency, the earnings will largely be sufficient for most banks to meet the regulatory as well as growth capital requirements and public sector banks will have limited dependence on the Government of India for capital. The improved growth and earnings outlook have also improved investors’ appetite, which shall also enable banks to raise capital from the markets if required.
While retail, MSME and agriculture have been the key segments for credit growth in the recent past, rising yields for overseas borrowings and in domestic capital markets have created a conducive demand environment for wholesale funding from banking channels.
As of November 18, 2022, credit expansion was impressive at `10.6 lakh crore, representing a decadal-high YoY growth of 17.6%. The gross slippage (or fresh NPA) rate also stood at a decadal low of 2.2% in H1 FY2023 (lowest since FY2012) and given the granular nature of the fresh slippages, the recoveries/upgrades have been better, leading to lower net slippages as well as credit losses.
Banks to witness good earnings, says ICRA
According to the rating agency, the earnings will largely be sufficient for most banks to meet the regulatory as well as growth capital requirements and public sector banks will have limited dependence on the Government of India for capital.