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Category :
industry
Headline :
Credit growth to moderate to 13.2% in FY24; NPAs will improve further: Icra
Date:
15/09/2023 09:32
A domestic rating agency has projected that credit growth in the banking system will moderate to a range of 12.1-13.2 percent in the current fiscal year, down from 15.4 percent in the previous year. This assessment comes from Icra, a domestic rating agency. Icra also anticipates continued improvement in asset quality, with the Gross Non-Performing Assets (GNPA) ratio expected to decrease to 2.8-3 percent by March 2024, compared to 3.7 percent at the end of the June quarter.
Regarding the high growth in unsecured credit, Icra expressed no significant concerns, emphasizing that the vulnerable retail book remains low and manageable. Icra's Co-Group Head, Anil Gupta, described the credit growth as "robust," even though it shows a slight moderation from a percentage growth perspective. He noted that the agency expects the total credit amount to be lower at Rs 16.5-18 lakh crore, compared to Rs 18.2 lakh crore in the previous year.
In response to the expected credit growth, banks are likely to focus on attracting more deposits this year. Icra predicts that overall deposit growth for FY24 will exceed 9 percent. However, this increase in deposits is expected to lead to higher deposit rates, impacting the net interest margin by over 0.20 percent and consequently affecting the profitability of banks. The return on assets is also expected to moderately decrease. Some banks may prioritize preserving profitability, and as a result, the improvement in net NPAs (Non-Performing Assets) at a systemic level may not be as significant as the decline in GNPAs.
Icra believes that overall credit costs for banks will decrease as fresh slippages reduce to under 2 percent. The quality of the loan books is expected to improve after addressing legacy bad loans. However, the agency remains cautious about the potential impact of macroeconomic shocks on asset quality if they materialize.
Icra also stated that both state-run and private sector banks are expected to be comfortable in terms of capitalization, with no need for the government to inject funds into any of its lenders. However, there is a risk of farm loan waivers, especially in light of a deficit monsoon, as general elections approach next year. This risk needs to be monitored, though Icra's estimates do not account for the impact of deficient rainfall.
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