Indian banks to be resilient, profitable despite global challenges

Moody’s Investor Services said that the credit quality of Indian banks will remain resilient despite the challenging environment globally due to strong domestic demand, improving credit conditions for borrowers, and enhancing solvency and financing.

Credit conditions have improved as a result of the significant reduction in inherited non-performing bank loans over the past three years, strengthening corporate financial health and easing NBFC stress.

ICRA, the Indian subsidiary of Moody’s, expects banks’ gross NPA ratios to improve to 2.63% over a decade from 3.96% in March 2023. Net NPA ratios are expected to improve to 0.83% from 0.97% a year ago.

“The company’s asset quality remains strong, which, together with the stable performance of retail asset quality, will help reduce new slippage,” says Karthik Srinivasan, Senior Vice President and Group Head, ICRA, adding that the 2 per cent slip rate for FY23 was the lowest since fiscal year 2012.

capital adequacy

“Banks globally are facing liquidity pressures amid tightening monetary policy, and excess liquidity inflows that have accumulated during the coronavirus pandemic… Indian banks, however, have strong domestic financing privileges and sufficient liquidity to support growth in their lending in line with India’s strong economic conditions,” she said. Alka Anparasu, Managing Director, Moody’s.

Capitalization levels have also improved, Moody’s said, pegging the average return on tangible assets at 1.0-1.2 percent over the next two years and asset growth at around 15 percent.

While loan growth is likely to ease to ₹11-11.7 per cent in FY24 from 15.5 per cent in FY23, additional credit growth is expected to be at ₹15-16 crore – the second highest increase for the banking sector ever. ICRA said.

Improved liquidity conditions are expected to lead to a drop in total bank issuances to below ₹90,000-lakh crores from a record ₹1.1-lakh crores in FY23. Additional Tier 1 issuances are seen to be stable at ₹30,000-33,400 crores, driven by university banks. the prince Sultan. Tier 2 issuances are likely to be moderate from a peak of Rs.49,600 crore in FY23, along with a few infrastructure bonds.

Margins versus costs

On a separate note, Crisil Ratings said banks’ NIM (Net Interest Margin) has peaked and is expected to compress 10-20 basis points to 3.0 – 3.1 percent in FY24. NIMs expanded by about 30 basis points in FY23 to 3.2 percent due to the varying pace of loans and changes in deposit rates.

This pressure will lead to some hike in deposit rates as deposits will come in at 30-35 per cent to be re-priced at higher rates, said Krishnan Seetharaman, Senior Director and Chief Ratings Officer at Crisil, adding that the shift from CASA to term deposits. It will continue with higher total filing costs.

Lower credit costs on the back of benign asset quality, however, will offset some of the impact and support profitability. The cost of credit is expected to decline to 0.7 percent in FY23 from about 1.8 percent in the period between FY16 and FY2020, and is expected to decline further, according to Cresel, pegging overall banking sector profitability at about 1.1 percent for FY24. .