Things seem to be improving for banks, according to the assessment of credit rating agencies (CRAs) Moody’s Investors Service and Crisil Ratings.
Moody’s has revised the outlook for the Indian banking system from âstableâ to ânegativeâ due to stabilizing asset quality and improving capital mobilization.
Crisil Ratings said the rise in bank NPAs will be moderate (to 8-9% in FY22 compared to 7.5% in FY21) due to various exemptions related to the Covid pandemic- 19 such as the restructuring exemption and the emergency line of credit guarantee program. (ECLGS).
This is well below the peak of 11.2% seen at the end of fiscal 2018.
In its Banking System Outlook for India, Moody’s observed that the deterioration in asset quality since the onset of the coronavirus pandemic has been moderate and that an improvement in the operating environment will support asset quality.
Moody’s point of view
The global credit rating agency has estimated that lower credit costs resulting from improved asset quality will lead to improved profitability. He estimated that the capital would remain above pre-pandemic levels.
Moody’s expects the Indian economy to continue to recover over the next 12-18 months, with GDP growth of 9.3% in the fiscal year ending March 2022 and 7.9% % the next year.
The agency noted that the recovery in economic activity will boost credit growth, which it expects to be 10 to 13 percent per year.
The weak financial position of companies and the funding constraints of finance companies were key negative factors for banks, but these risks have diminished.
According to Moody’s, the deterioration in asset quality since the start of the pandemic has been more moderate than expected despite relatively limited regulatory support for borrowers.
The agency said the quality of business loans has improved, indicating that banks have recognized and provisioned all legacy problem loans from this segment.
âThe quality of personal loans has deteriorated, but to a limited extent as there have been no large-scale job losses. We expect asset quality to improve further, leading to lower costs of credit, as economic activity normalizes, âMoody’s said.
Crisil Ratings said relief measures linked to Covid-19 will help limit the rise in NPAs.
While loans in the retail and MSME segments are expected to be the hardest hit, business loans are seen as much more resilient. The agricultural segment is expected to remain relatively stable.
With around 2% of bank credit expected to be restructured by the end of this fiscal year, Crisil estimated that stressed assets including gross ANP and the portfolio of loans under restructuring should reach 10 to 11% (against an estimate around 9% at the end of March 2021).
Krishnan Sitaraman, Senior Director and Deputy Rating Director, Crisil Ratings, said: âRetail and MSME segments, which together account for around 40% of bank lending, are expected to see an increase in NPAs this time around. and stressed workers.
âLive assets in these segments are expected to grow to 4-5% (up from 3% last year) and 17-18% (14%), respectively, by year end. The numbers would have trended even higher without write-offs, mainly in the unsecured segment. ”