Indian lenders tend to see life on the high side Credit growth19 lakh crore in the current financial year, the domestic rating agency said Death Penalty said on Monday. It also said that system-level asset quality will also improve by close to 4%.
Rising credit growth is expected to hit an all-time high of Rs 18-19 lakh crore in FY 2023, up from the previous high of Rs. 11.4 lakh crore in FY 2019. In FY2024 incremental credit growth is expected to be Rs 15.0-16.0 lakh crore. ICRA said primary asset quality and profitability metrics will be better in the last decade.
“ICRA has revised its outlook on the banking sector to positive based on expectations that domestic conditions for bank credit growth are likely to remain favourable, which, coupled with benign asset quality pressures, will translate into a strong earnings profile for the sector,” ICRA Senior Vice President Anil Gupta said.
“Growth momentum is expected to remain strong in FY2024, although rising interest rates and tight liquidity conditions may moderate growth.”
In a report, the rating agency said the banks’ earnings would be sufficient to meet regulatory and growth capital requirements, while public banks would have limited dependence on the Government of India for capital. The improved growth and earnings outlook has improved investor appetite, which will help banks raise capital from the markets if needed, the agency said.
While retail, MSME and agriculture have been the major sectors of credit growth in the recent past, rising yields in external loans and domestic capital markets have created an enabling environment for wholesale financing from banking channels. As of November 18, 2022, credit expansion stood at Rs 10.6 lakh crore, representing a decade-high growth of 17.6%.
In addition to credit growth, total slippages, or the creation of new bad loans, in the first half of this fiscal year were the lowest since 2012. With the relatively good health of the corporate sector, the asset quality outlook is also strong. ICRA estimates that gross bad loans will decline to 3.9-4.3% by March 2024, while net bad loans will decline to 1.1-1.3%.
“While the outlook for the sector is positive, we remain cautious about the impact of rising interest rates and inflation or economic shocks on asset quality, Gupta said. “Banks’ ability to adequately pass on rising deposit costs and increase the level of discretionary spending to expand their customer base will increase their operating profitability. Lastly, we are also mindful of the impact on banks’ profitability following regulatory changes such as implementation of IND-AS or revision in salaries and pensions in public banks.