Ind-Ra maintains stable outlook for banking sector

Heightened Stress in Retail & MSMEs to Push Out Inflexion Point

0 10,670

Biznextindia : 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 that has helped manage the system-wide COVID-19 linked stress. Banks also continue to strengthen their financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years.

The Rating Agency has kept its FY22 credit growth estimates unchanged at 8.9% for FY22, supported by a pick-up in economic activity post 1QFY22, higher government of India (GoI) spending especially on infrastructure and a revival in demand for retail loans. The agency estimates GNPA at 8.6% and stressed assets at 10.3% for FY22. The agency expects provisioning cost to increase to 1.9% from its earlier estimate of 1.5% for FY22.

Ind-Ra’s Stable Outlook on large Pvt Banks indicates their continued market share gains both in assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and proactively managed their portfolio. As growth revives, large Pvt Banks are likely to benefit from credit migration due to their superior product and service proposition.

Meanwhile, Ind-Ra has a Stable Outlook on most old Pvt Banks with a loyal liability franchise; the agency believes they would continue to operate in their niches where they are a sole banker/ sizeable lender for a large proportion of the borrower’s needs. However, as they face competition on multiple fronts – small finance banks (SFBs), non-bank finance companies (NBFCs) and new age players, they would need to invest in services and technology orientation even further to be in the play for the existing business as well as growth.

Ind-Ra’s Stable Outlook on PSBs takes into account continued government support through large capital infusions (INR2.8 trillion over FY18-FY21 and further INR0.2 trillion provisioned for FY22), leading to a significant boost in capital buffers over the minimum regulatory requirements, significant improvement in provision coverage to 68% in FY21 (FY18: 49%), overall systemic support resulting in lower-than-expected COVID-19 stress and smooth amalgamation of PSBs.

Ind-Ra has a Negative Outlook on five banks (about 6.5% of system deposits), driven primarily by weak capital buffers and continued pressure on franchise.

The Agency has a stable outlook on the SFB segment on the back of high capital buffers, high yield loan business and deposit rate and technology-driven traction on the liability side. Given the growth ambitions of banks and their investors, many of them would aspire to become universal banks so as to be able to service customers across the yield spectrum.

 

Leave A Reply

Your email address will not be published.