The banking sector is on course to report the best asset quality in over a decade this fiscal, with headline gross NPAs and net NPAs falling to 2.63 per cent and 0.83 per cent, respectively, in March 2023, according to Moody's and its arm Icra Ratings. At the same time, the likely gross fresh NPA generation at 2 per cent will be the lowest since fiscal 2012, the agencies told reporters here Tuesday.
They also said the strong domestic demand, improving credit conditions of borrowers and strengthened solvency and funding will support further improvement in the credit quality of banks and non-banking financial institutions in spite of the challenging environment for banks globally.
The report expects the healthy profitability trend to continue, primarily driven by strong loan growth, which it sees to moderate to 11-11.7 per cent this fiscal from 15.5 per cent in fiscal 2023 and a favourable credit environment.
The trend of improving asset quality will continue with headline gross non-performing advances and net bad loans declining to their best level in over a decade, at 2.63 per cent and 0.83 per cent this fiscal from 3.96 per cent and 0.97 per cent, respectively, in fiscal 2023. At the same time, the gross fresh NPA generation rate of 2 per cent will be the lowest level since fiscal 2012, Alka Anbarasu, an associate managing director at Moody's and Karthik Srinivasan, a senior vice-president at Icra ..
While the year-on-year credit growth is likely to moderate with higher interest rates, the incremental credit growth is expected to be Rs 15-16 lakh crore, which is poised to become the banking sector's second-highest increase on record, they said.
Explaining the rationale for their optimism, they said credit conditions have gradually improved, with a significant reduction in the banks' stock of legacy NPA over the past three years. On the other hand, corporates' financial health has also improved following a decade of deleveraging. And stress among non-bank financial institutions has also abated.
Source Name:Economic Times