New Delhi: India Ratings and Research (Ind-Ra) has maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support. This support has helped manage the system-wide Coronavirus (Covid-19) pandemic linked stress.
The rating agency has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post Q1FY22, higher government spending, especially on infrastructure and a revival in demand for retail loans. The agency estimates Gross Non-performing Assets (GNPAs) at 8.6 per cent for FY22, up from 7.7 per cent in FY21. The stressed assets at 10.3 per cent for FY22 from 8.6 per cent in FY21.
The agency in a statement said banks also continue to strengthen financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years.
The agency expects provisioning cost to increase to 1.9 per cent from its earlier estimate of 1.5 per cent for FY22.
The sector’s profitability is expected to improve in FY22 driven by enhancement in the financial profile of public sector banks.
Referring to the effects of the Covid-19 pandemic on retail loans, the agency said that the safe bastion fell as the pandemic drove higher delinquencies. The asset quality impact in the retail segment has been higher for private banks.
Banks have undertaken restructuring in retail assets (including home loans), which could have postponed an immediate increase in slippages. Overall stressed assets (GNPA + restructured pool) in the segment is expected to increase to 5.8 per cent by end-FY22, up from 2.9 per cent a year ago.
The micro, small and medium enterprises sector has been under pressure with demonetisation, introduction of GST and RERA, 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 and restructuring.
The agency expects that the beginning Q3FY22, will see a portion of such advances start exiting moratoriums, a part of which could slip. The GNPAs are expected to increase to 13.1 per cent by end-FY22 from 9.9 per cent in FY21. Stressed assets GNPAs plus restructured assets) similarly would increase to 15.6 per cent from 11.7 per cent, it added.