Comments
The gross non-performing asset (GNPA) ratio of scheduled commercial banks (SCBs) is expected to reduce in FY24 due to lower incremental slippages, a reduction in special mention account (SMA) books and restructuring portfolios, and healthy growth in advances, according to CARE Ratings.
A decline in the overall stressed assets (GNPA plus restructured assets) due to a reduction in GNPAs on account of resolution and/or write-offs and improvement in restructured assets with control on asset slippages is expected to continue, the credit rating agency said in a report.
Hence, GNPAs could reach the pre-Asset Quality Review (AQR) levels of around 3.8 per cent. But additional efforts would be required so that the GNPA ratio moves lower than this number.
The agency noted that GNPAs of SCBs reduced by 19.7 per cent year-on-year to ₹6.1 lakh crore as of December 31, 2022, due to lower slippages, steady recoveries and upgrades, write-offs, and transfer to Asset Reconstruction Companies (ARCs).
“SCBs GNPA ratio reduced to 4.5 per cent as of December 31, 2022, from 6.6 per cent over a year ago and is likely to reach the pre-Asset Quality Review (AQR) levels. Robust growth in advances has also supported this reduction, ”per the report put together by CARE Ratings’ Sanjay Agarwal, Senior Director; Saurabh Bhalerao, Associate Director; and Vijay Singh Gour, Lead Analyst.
Net Non-Performing Assets (NNPAs) of SCBs reduced by 32.5 per cent YoY to ₹1.5 lakh crore as of December 31, 2022.
The NNPA ratio of SCBs reduced to 1.1 per cent from 2 per cent in Q3 FY22, which is significantly better than pre-AQR levels of 2.1 per cent (FY14), the rating agency officials said. Thus, the NPA provision coverage ratio (PCR) is high at 75.5 per cent.
The report noted that SCBs have been witnessing a widening gap between credit offtake and deposit growth. To fund credit growth, banks have begun to focus on their liability franchise.
Also read: Lagging deposit growth could constrain bank credit growth in FY24: India Ratings
“Banks have been increasing rates for raising deposits and are also planning to issue bonds. Further, profitability is also expected to support the capital base of the banks. Overall, SCBs are expected to remain adequately capitalised in the near term,” the officials said.
Officials observed that credit growth has generally been trending upward throughout FY23 and is expected to be in the mid-teens in FY23.
“Deposit rates have already increased and are expected to rise further. In the rising interest rate scenario, banks that have been able to maintain a higher CASA (current account, savings account), as well as EBLR (external benchmark-based lending rate) -based floating loans, are expected to benefit and sustain the NIM (net interest margin).
“Overall, NIMs are expected to stabilise with a negative bias as lending rates would likely complete their rising cycle, while liabilities would continue to be repriced,” per the report.
Banks reported a robust growth in total income for Q3 FY23 driven by growth in interest income, and other income was steady due to growth in fee income and stability in investment portfolios, which is likely to continue in the near term, officials said. Hence, banks are also expected to report strong PPOP (pre-provision operating profit) growth in FY23.
Also read: PSU banks’ profit jumps 65% in Q3; Bank of Maharashtra tops chart with 139% surge
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.