Mumbai: Domestic rating agency ICRA on Wednesday downgraded its outlook for the banking sector to 'stable' from 'positive' on expectations of softening credit growth and profitability.
The agency said loan growth will decelerate to 11.6-12.5 per cent in FY20 from 16.3 per cent (except the impact of the HDFC twins merger), while lower net interest income margins on higher deposit rate payouts will decline. Profit.
On the asset quality front, it expects the gross non-performing assets ratio for the banking system to decline to 2.2 per cent by March 2024, which is likely to reach 3 per cent by March 2024, its Vice Chairman Sachin Sachdeva told reporters.
This will be the lowest level since September 2011, Sachdeva said.
The agency said unsecured retail advances and loans to non-bank finance companies will slow in FY2025, leading to a decline in overall non-food credit growth in the system.The incremental disbursement of such loans has declined to 23 per cent from 29.4 per cent earlier due to RBI curbs on unsecured lending by increasing the risk weight in November, it is reported.
However, challenges on mobilizing deposits will continue in FY2015, and the bank will have to raise deposit rates to attract funds, the agency said, noting the credit deposit ratio, which has reportedly come under the regulator's radar recently, Will continue to be high at more than 80 percent.
The agency said it expects "convergence" between credit and deposit growth in FY2015, which will be supportive for the system given the current four percentage point GA.
It said the share of low-cost current and savings account deposits will also moderate as customers continue to prefer higher yielding term deposits, putting pressure on net interest margins (NIM) for banks.
Its senior vice-president Anil Gupta said NIM has been under pressure for the last two years and will ease further in FY2025 due to the impact of increase in deposit rates.
This will impact profitability, the agency said, pointing to the performance seen during the first nine months of FY24, where the numbers are known.It said the increase in operating expenses would also impact profits.
However, credit costs, a key number impacting profits in the past, are expected to remain benign for FY2015, due to gains on the asset quality front, mitigating the impact of other factors hurting profit growth. Help will be available, the agency said.
In the data available for FY24, state-run lenders have come out better in terms of fresh slipping growth compared to private sector banks, which are otherwise considered more lean and diligent.
Gupta pointed out that a larger share of corporate advances has helped public sector banks perform better on slippages compared to private sector banks, which have a greater focus on retail and small business loans.
Gross fresh NPA generation in state-owned banks is expected to come in at 1. per cent in FY2014, and go up to 1.5 per cent in FY2015, while in private sector banks it is expected to be 2 per cent and 2.2 per cent. Have an estimate.Respectively, th agency said.
It said the proportion of unsecured loans in the overall advance mix is still very low, and any increase in stress on such advances would not pose any serious problem.
The agency observed that the RBI will implement the expected credit loss-base provisioning system from April 1, 2025. However, for the two banks with lower levels of capital buffers, the system is well prepared to accept the change.
Overall, from a capital buffer perspective, the system is in good shape right now, it said.Gupta said if market expectations about the ruling BJP continuing in power are met, there could be some pick-up in corporate credit growth as a large number of companies will be encouraged to invest due to policy stability, while bank privatization will take place. The agenda will also move forward once. IDBI Bank sale is going on.
The agency said loan growth will decelerate to 11.6-12.5 per cent in FY20 from 16.3 per cent (except the impact of the HDFC twins merger), while lower net interest income margins on higher deposit rate payouts will decline. Profit.
On the asset quality front, it expects the gross non-performing assets ratio for the banking system to decline to 2.2 per cent by March 2024, which is likely to reach 3 per cent by March 2024, its Vice Chairman Sachin Sachdeva told reporters.
This will be the lowest level since September 2011, Sachdeva said.
The agency said unsecured retail advances and loans to non-bank finance companies will slow in FY2025, leading to a decline in overall non-food credit growth in the system.The incremental disbursement of such loans has declined to 23 per cent from 29.4 per cent earlier due to RBI curbs on unsecured lending by increasing the risk weight in November, it is reported.
However, challenges on mobilizing deposits will continue in FY2015, and the bank will have to raise deposit rates to attract funds, the agency said, noting the credit deposit ratio, which has reportedly come under the regulator's radar recently, Will continue to be high at more than 80 percent.
The agency said it expects "convergence" between credit and deposit growth in FY2015, which will be supportive for the system given the current four percentage point GA.
It said the share of low-cost current and savings account deposits will also moderate as customers continue to prefer higher yielding term deposits, putting pressure on net interest margins (NIM) for banks.
Its senior vice-president Anil Gupta said NIM has been under pressure for the last two years and will ease further in FY2025 due to the impact of increase in deposit rates.
This will impact profitability, the agency said, pointing to the performance seen during the first nine months of FY24, where the numbers are known.It said the increase in operating expenses would also impact profits.
However, credit costs, a key number impacting profits in the past, are expected to remain benign for FY2015, due to gains on the asset quality front, mitigating the impact of other factors hurting profit growth. Help will be available, the agency said.
In the data available for FY24, state-run lenders have come out better in terms of fresh slipping growth compared to private sector banks, which are otherwise considered more lean and diligent.
Gupta pointed out that a larger share of corporate advances has helped public sector banks perform better on slippages compared to private sector banks, which have a greater focus on retail and small business loans.
Gross fresh NPA generation in state-owned banks is expected to come in at 1. per cent in FY2014, and go up to 1.5 per cent in FY2015, while in private sector banks it is expected to be 2 per cent and 2.2 per cent. Have an estimate.Respectively, th agency said.
It said the proportion of unsecured loans in the overall advance mix is still very low, and any increase in stress on such advances would not pose any serious problem.
The agency observed that the RBI will implement the expected credit loss-base provisioning system from April 1, 2025. However, for the two banks with lower levels of capital buffers, the system is well prepared to accept the change.
Overall, from a capital buffer perspective, the system is in good shape right now, it said.Gupta said if market expectations about the ruling BJP continuing in power are met, there could be some pick-up in corporate credit growth as a large number of companies will be encouraged to invest due to policy stability, while bank privatization will take place. The agenda will also move forward once. IDBI Bank sale is going on.
