The asset quality of the Indian banking system is expected to improve further, with its gross non-performing assets (NPA) expected to decline to 5.6-5.7% by March 2023 from 6.2-6.3% in March 2022, according to CIFAR.
NPAs will decline to 1.7-1.8% by the end of the current fiscal year (FY23) from an estimate of 2% by March 2022.
However, the rating agency added a caveat that the performance of the restructured loan portfolio poses uncertainty about asset quality. 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, he said. he adds.
Credit and other provisions are expected to drop to 1.3-1.4% of advances in FY23 from around 1.7-1.8% in FY22, vice-president Anil Gupta said. -President of CIFAR.
ICRA expects banks’ outlook to be “stable” in FY23, based on continued earnings improvement driven by improved credit growth from 8.9 to 10 .2% in FY23 (8.3% in FY22 and 5.5% in FY21) and lower credit provisions.
Growth in bank credit would come from the non-food segment which continues to be driven by the retail and MSME segments, and partly from co-lending agreements with non-bank financial companies (NBFCs).
The pace of deposit mobilization is expected to slow to 7.3-7.9% in FY23 (8.3% in FY22e and 11.4% in FY21).