India Ratings and Research (Ind-Ra) has maintained a stable outlook on India’s banking sector for the rest of this fiscal (FY22), supported by the continuing systemic support that has helped manage the system-wide COVID-19-linked stress. Banks also continue to strengthen their financials by raising capital and adding to provision buffers that have already seen a sharp rise in the last few years.
Ind-Ra has a stable outlook on most old private banks with a loyal liability franchise. It believes they would continue to operate in their niches where they are a sole banker/ sizeable lender for a large proportion of the borrower’s needs.Ind-Ra has maintained a stable outlook on India's banking sector for the rest of this fiscal, supported by the continuing systemic support that has helped manage the system-wide COVID-19-linked stress. Banks continue to strengthen their financials by raising capital and adding to provision buffers that have already seen a sharp rise in the last few years.#
However, as they face competition on multiple fronts—small finance banks (SFBs), non-bank finance companies (NBFCs) and new age players, they would need to invest in services and technology orientation even further to be in the play for the existing business as well as growth, it said in a press release.
Ind-Ra has kept its FY22 credit growth estimates unchanged at 8.9 per cent, supported by a pick-up in economic activity following the first quarter, higher central government spending, especially on infrastructure, and a revival in demand for retail loans.
The agency estimates gross non-performing asset (GNPA) at 8.6 per cent and stressed assets at 10.3 per cent for FY22. It expects provisioning cost to increase to 1.9 per cent from its earlier estimate of 1.5 per cent for FY22.
The micro, small and medium enterprises (MSME) sector has been under pressure with demonetisation, introduction of goods and services tax, slowing down of large corporates and now COVID-19. However, the government has supported the segment by offering liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and restructuring.
Ind-Ra expects that beginning the third quarter of this fiscal, a portion of such advances would start exiting moratoriums a part of which could slip. GNPAs may increase to 13.1 per cent by end of this fiscal from 9.9 per cent in FY21. Stressed assets similarly would increase to 15.6 per cent from 11.7 per cent.
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