Incremental credit growth in FY2023 is expected to be 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. Incremental credit growth is expected to be Rs 15.0-16.0 lakh crore in FY24. ICRA said the headline asset quality and profitability metrics are likely to be among the best seen during the past decade.
“ICRA revised its outlook on the banking sector to positive, on expectation that domestic conditions are likely to remain favorable for bank credit growth, which, along with benign asset quality pressures, would translate into a stronger earnings profile for the sector.” Will go,” said Anil Gupta, Senior Vice President, ICRA.
“Growth momentum is expected to remain strong in FY2024 as well, even as rising interest rates and tight liquidity conditions may slow down growth.”
The rating agency said in a report that the earnings generated by the banks would be sufficient to meet regulatory as well as growth capital requirements and public sector banks would have limited dependence on the Indian government for capital. The agency said better growth and earnings outlook have also improved investor appetite, which will also enable banks to raise capital from the markets.
While retail, MSME and agriculture have been the major segments of credit growth in the recent past, overseas borrowings and rising yields in domestic capital markets have created a favorable demand environment for wholesale funding from banking channels. Till November 18, 2022, credit expansion stood at an impressive Rs 10.6 lakh crore, representing a decadal high annual growth of 17.6%.
Apart from credit growth, the gross slippages or fresh formation of bad loans in the first half of this fiscal has been the lowest since 2012. With the corporate sector in relatively better health, the asset quality outlook also remains strong. ICRA estimates that gross bad loans will come down to 3.9-4.3% by March 2024, while net bad loans will come down to 1.1-1.3%.
“While the outlook for the sector is positive, we continue to be cautious on the impact of rising interest rates and inflation or economic shocks on asset quality,” Gupta said. “The ability of banks to adequately pass on the rising cost of deposits and the extent of increase in discretionary expenditure to expand their customer franchise, will drive their operating profit. Lastly, we are mindful of any impact on banks’ profitability post implementation of Ind-AS or regulatory changes such as revision in pay and pension in public sector banks.