Bank credit could increase by 8.9-10.2% in FY2023, compared to approximately 8.3% in FY2022 and 5.5% in FY2021 as credit provisions according to the Icra. The rating agency said bank credit growth would come from credit growth in the non-food segment, which continues to be driven by the retail and MSME segments; and partly through co-lending agreements with non-banking financial companies (NBFCs), in its latest Financial Sector Research Note.
Wholesale credit growth would be supported by a shift in debt capital market demand towards bank credit, in an upside yield scenario, as seen in fiscal 2019 earnings. driven by improving credit growth.
Treasury revenues are expected to decline in the current fiscal year in a scenario of rising bond yields. Still, return on assets (RoA) should improve, supported by better credit growth and lower credit provisioning as old stressed net assets continue to shrink.
But there are challenges like the moratorium on exiting restructured loan portfolios as well as the macro challenges of the Russian-Ukrainian war. “For the sector, the challenges emanate from the performance of the restructured loan portfolio, which poses uncertainty about asset quality as these loans emerge from the moratorium,” said Anil Gupta, vice president, Icra. In addition, the Russian-Ukrainian conflict poses macroeconomic challenges related to cost inflation, rising interest rates and exchange rate volatility, which could put pressure on asset quality. The high level of delinquent loans in the retail and MSME segments post-Covid also remains a concern. »
In terms of asset quality, gross non-performing advances are expected to decline to 5.6-5.7% by March 2023, from an estimate of 6.2-6.3% by March 2022. Credits and other provisions are expected to decline to 1.3-1.4% growth in FY23 from an estimated 1.7-1.8% for FY22. But deposit growth is expected to slow to 7.3- 7.9% in fiscal year 2023, compared to an estimated 8.3% for fiscal year 2022 and 11.4% for fiscal year 2021.