Banking stress in retail, MSMEs to push out inflexion point: Ind-Ra
Sep 07, 2021
Mumbai (Maharashtra) [India], Sep 7 : India Ratings and Research (Ind-Ra) on Tuesday maintained a stable outlook on overall banking sector for the rest of FY22 supported by 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, it said.
Ind-Ra kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22 supported by a pick-up in economic activity post 1Q FY22, higher government spending especially on infrastructure and a revival in demand for retail loans.
The agency estimated GNPA at 8.6 per cent and stressed assets at 10.3 per cent for FY22. It expected provisioning cost to increase to 1.9 per cent from its earlier estimate of 1.5 per cent for FY22.
Ind-Ra's stable outlook on large private banks indicated their continued market share gains both in assets and liabilities while competing intensely with public sector banks. Most have strengthened their capital buffers and proactively managed their portfolio.
As growth revives, large private banks are likely to benefit from credit migration due to their superior product and service proposition.
Ind-Ra's stable outlook on public sectors banks took into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18 to FY21 and further Rs 0.2 lakh crore provisioned for FY22), leading to a significant boost in capital buffers over the minimum regulatory requirements.
It also took into account significant improvement in provision coverage to 68 per cent in FY21, overall systemic support resulting in lower-than-expected Covid-19 stress and smooth amalgamation of public sector banks.
However, India-Ra said the overall stressed assets in retail segment is expected to increase to 5.8 per cent by end-FY22.
For MSMEs, it expected GNPAs to increase to 13.1 per cent by end-FY22 from 9.9 per cent in FY21. Stressed assets similarly will increase to 15.6 per cent from 11.7 per cent.
