Bank credit growth likely to be at 8.9-10.2% this fiscal: Report

The outlook for banks is expected to be stable amid an improvement in credit growth of 8.9-10.2% and decline in provisions in the current fiscal, rating agency Icra Ratings said on Tuesday

The outlook for banks is expected to be stable amid improvement in credit growth of 8.9-10.2 per cent and decline in provisions in the current fiscal, rating agency Icra Ratings said on Tuesday.

Gross Non-Performing Advances (GNPAs) of banks are expected to decline to 5.6-5.7 per cent by March, 2023 as against an estimate of 6.2-6.3 per cent by March, 2022.

"Icra Ratings expects outlook for banks to be stable in FY23, based on continued improvement in earnings driven by improved credit growth of 8.9-10.2 per cent in FY23 (8.3 per cent for FY22 (expected) and 5.5 per cent in FY21) and decline in credit provisions," the agency said in a report on Tuesday.

Credit growth would come from non-food segment borrowing which continues to be driven by retail and MSME segments, and partially by co-lending arrangements with non-banking finance companies (NBFCs), it said. In the wholesale credit segment, growth will be supported by demand shift from debt capital market to bank credit in a rising yield scenario as was seen in FY19.

The agency expects treasury income to decline materially during FY23 in a rising bond yield scenario.

"In terms of asset quality, the gross non-performing advances are expected to decline to 5.6-5.7 per cent by March, 2023 as against estimate of 6.2-6.3 per cent by March, 2022 while the net non-performing advances will decline to 1.7-1.8 per cent as against estimate of 2 per cent by March 2022," the agency's vice president Anil Gupta said.

Credit and other provisions are estimated to decline to 1.3-1.4 per cent of advances in FY23 as against estimated 1.7-1.8 per cent in FY22.

On the other hand, the deposit growth is expected to slowdown to 7.3-7.9 per cent in FY23 as against 8.3 per cent estimated in FY22, Gupta said.

In terms of regulatory and growth capital requirements, public sector banks will be self-sufficient in FY23 while the incremental capital requirement for private sector lenders are estimated at less than Rs 10,000 crore.

The agency said credit growth will reduce liquidity surplus in the banking system to Rs 1.5-2.5 lakh crore, and RBI may also suck out surplus liquidity.

Major growth drivers will be strong corporate credit ratio, tightened underwriting in retail and MSME segments, reducing bounce rates and improving collections, the report said.