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
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.
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.
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.
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