Banks credit growth estimated at 8.9-10.2% in FY2023: ICRA report

ICRA expects the outlook for banks to be ‘stable’ in FY23, based on continued improvement in earnings driven by better credit growth of 8.9-10.2% in FY23 (8.3% for FY22 and 5.55% in FY21) and a decline in credit provisions.

The asset quality of the Indian banking system is
expecting to improve further with its gross non-performing assets (NPAs) likely
to decline to 5.6-5.7% by March 2023 from 6.2-6.3% in March 2022, according
ICRA.

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It is estimated that the NPAs will decline to 1.7-1.8% by
the end of this fiscal year (FY23), as opposed to 2% by March 2022.

Anil Gupta, vice president, ICRA, said that the credit and other provisions are estimated to fall to 1.3-1.4% of advances in FY23 as compared to an estimated 1.7-1.8% in FY22.

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In addition, the rating agency noted that the performance
of the restructured loan book poses a risk to asset quality. The Russia-Ukraine
conflict poses macroeconomic challenges due to cost inflation, higher interest
rates, and exchange rate volatility, which could negatively affect asset
quality, according to the report.

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Banking credit growth will come from the non-food
segment, which will continue to be driven by retail and MSME sectors, as well
as co-lending arrangements with non-banking finance companies.

It is expected that deposit mobilisation will slow down
to 7.3-7.9% in FY2023 from 8.3% in FY22 and 11.4% in FY21.

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The growth in wholesale credit segment will also be
supported by demand shift from debt capital market to bank credit, in a
rising yield scenario as was seen in FY2019. Treasury income is expected to
decline materially in FY2023 under a rising bond yield scenario, despite this,
the return on assets (RoA) is expected to improve due to improved credit growth
and a decline in credit provisioning as legacy net stressed assets are expected
to decline.