The rating agency has kept its FY12 credit growth estimates unchanged at 8.9% for FY21, supported by a pick-up in economic activity after the first quarter of FY12.
Domestic rating agency India Ratings on Tuesday maintained a stable outlook on the banking sector for 2021-22, while it expects a rise in stressed assets in the retail and MSME sectors by the end of March.
It is estimated that the Gross Non-Performing Assets (GNPA) of the banking sector for the financial year 2021-22 at 8.6% and stressed assets at 10.3%.
The rating agency, in its mid-year banks outlook, said, “We have maintained a stable outlook on the overall banking sector for the rest of FY12, supported by continued systemic support, which has driven a system-wide COVID-19 response. Has helped manage the stress associated with -19.” released on Tuesday.
The bank said it will continue to strengthen its financial position by raising capital and adding provision buffers, which have already seen sharp growth in the last three to four years.
The agency said its stable outlook on large private banks indicates their continued market share in both assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and actively manage their portfolios.
It said the outlook on PSBs takes into account the ongoing government support through large capital infusions (provision of ₹2.8 lakh crore in FY18-FY21 and ₹0.2 lakh crore for FY22).
The agency has a negative outlook on the five banks (about 6.5% of system deposits) primarily driven by a weak capital buffer and continued pressure on franchises.
It estimates that the impact of asset quality in the retail sector has been greater for private banks, with an average increase of over 100% in gross NPAs from Q1 FY21 to Q1 FY22 (around 45% for PSBs).
“Banks have also restructured in retail assets (including home loans), which could have deferred an immediate rise in slippage. The total stressed assets (GNPA + restructured) in the segment is expected to rise to 5.8 per cent by FY22-end ” stated in the report.
It said the MSME sector has been under pressure from demonetisation, introduction of GST and RERA, slowdown of large corporates and now COVID-19.
While the government has supported the segment by offering liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and restructuring, it said it expects that from the start of Q3 FY22, a portion of such advances will come out of the moratorium. will begin to protrude, a part of which may slip. .
The GNPA of MSMEs is expected to rise to 13.1% by the end of FY12 from 9.9% in FY21. Stressed assets will similarly increase from 11.7% to 15.6%.
For the corporate segment, the agency estimates GNPA to rise to 10.2% and stressed assets to rise to 11.3%.
The rating agency has kept its FY12 credit growth estimates unchanged at 8.9% for FY12, reflecting a pick-up in economic activity, especially higher government spending on infrastructure, after the first quarter of FY12. and is supported by a revival in retail credit demand.
Last week, the agency had changed the outlook for retail non-banking finance companies (NBFCs) and housing finance companies (HFCs) from stable to recovery for the second half of FY22.
It added that non-banks have adequate system liquidity (due to regulatory measures), adequate capital buffer, stable margins on account of low funding cost and on-balance sheet provisioning buffer.
These factors ‘provide ample cushion to navigate the challenges’ that may arise from a weak operating environment, leading to an increase in asset quality challenges due to the second COVID wave impacting disbursements and collections for non-banks can’.
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