Banking Sector Outlook: The credit growth of the banking sector was not able to reach double digits in the last few years, but now it can grow at the rate of 10 percent in the next financial year 2023.
Banking Sector Outlook: In the last few years, the credit growth of the banking sector was not able to reach double digits, but now it can grow at the rate of 10 percent in the next financial year 2023. According to India Ratings and Research, the pick-up in economic activity is showing signs of a pick-up in credit growth due to rising spending on the infrastructure sector and recovery in retail demand. However, for the current financial year, the rating agency has cut the credit growth estimate of the banking sector. Now in the current financial year 2021-22, the credit growth of the banking sector can be 8.4 percent instead of 8.9 percent. At the same time, in this report, the asset quality has also been estimated to improve in the financial year 2023. Gross NPAs may improve to 6.1 per cent by the end of the next financial year.
Bank credit growth positive in the corporate segment
The ratings agency believes that companies will benefit from the return of capital expenditure, increased working capital demand due to higher output, more exports and commodity inflation. There can be a primary investment of Rs 2 lakh crore in the sectors associated with the Performance-Linked Incentive (PLI) scheme and this investment can boost investment even further. According to Karan Gupta, Director, Financial Institutions, India Ratings, bank credit growth in the corporate segment is likely to be around 8 per cent in FY2023 on a year-on-year basis.
Fear of pressure in MSMEs
India Ratings has estimated that the stressed assets of the corporate segment may remain at 10.4 per cent in the current financial year 2022 and 10.3 per cent in the next financial year 2023 as compared to 10.8 per cent in FY 2021, on account of better recovery. However, due to stressed assets in MSMEs, it may increase to 16.7 percent due to pressure. Due to the stressed asset recovery for the retail sector, it may slip to 4.9. However, the write off of that gross NPA has not been included in this analysis.
Warning to old public sector banks
India Ratings has upgraded the banking sector outlook for FY2023 from ‘stable’ to ‘improving’ on the back of higher credit growth, healthy capital position and improving bad loan position. According to the agency, the market share of large private sector banks will continue to be strong across all assets and liabilities. However, India Ratings has asked old state-run banks to be cautious about asset quality as a major part of their loan book consists of loans given to small and mid-range enterprises.
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