India poised for banking sector growth amidst regional improvements: Fitch Ratings
Dec 16, 2023
New Delhi [India], December 16 : Fitch Ratings presents a positive outlook for 2024, underlining the nation's substantial improvement in 2023, surpassing expectations.
According to Fitch Ratings, the Asia-Pacific (APAC) Emerging Market Banks Outlook 2024 positions India favourably, anticipating sustained growth and enhanced performance.
The broader APAC region is expected to witness improved financial results across emerging-market banking systems in 2024. Fitch Ratings attributes this optimism to robust economic growth fostering increased demand for loans.
Notably, India stands out with an improving sector outlook, aligning well with positive bank operating environments (OE) assessments in the country, showcasing the nation's resilience and potential in the banking landscape.
While Fitch acknowledges the deteriorating outlook in China due to various policy measures aimed at supporting its economy, the impact on India's banks within Fitch's rated portfolio is expected to be less pronounced.
India's banking sector resilience stems from its robust internal mechanisms and the status of domestic systemically important banks.
Elevated interest rates and near-cyclical-high net interest margins (NIM) are identified as key factors supporting profitability in much of APAC.
India, along with Indonesia, Thailand, Vietnam, and the Philippines, is poised to experience steady margins and profitability, reflecting the country's positive macroeconomic conditions.
Fitch expects India to maintain its strong position in terms of earnings growth.
Fitch's macroeconomic forecasts indicate favourable conditions for new business generation in 2024. Nominal GDP growth and loan growth are projected to be within the mid-single-digits to mid-teens range across the region.
For India, this backdrop, coupled with steady employment levels and manageable inflation, is expected to underpin earnings growth, making it a standout performer in the APAC region.
While Fitch expects the Reserve Bank of India (RBI) to lower policy rates in 2024, any further increase to tackle inflation could be beneficial for Net Interest Margins (NIMs) and earnings in the short term.
However, sustained rate hikes pose risks to credit demand and asset quality.
Risk control and effective management are emphasized, especially as the sector experiences significant growth in risk appetite, including unsecured retail loans.
The implementation of expected loss provisions by RBI could influence loss-absorption buffers, necessitating prudent risk management strategies.
India's banking sector appears set for a growth trajectory in 2024, leveraging favourable regional and domestic conditions. As the nation continues to fortify its banking infrastructure, manage risk effectively, and adapt to evolving economic dynamics, it stands as a key player in the broader APAC banking landscape.
With an improving sector outlook and positive operating environments, India's banking sector is well-positioned for sustained growth and stability in the coming year.
