India Ratings and Research (Ind-Ra) has revised its overall banking sector outlook from negative to stable for FY22. This is because the system-wide COVID-19 related tension has been lowered below predicted levels by significant structural interventions. By raising capital and building provision reserves, banks have also improved their financials.
Ind-Ra has revised its FY21 credit growth forecasts to 6.9 percent from 1.8 percent and 8.9 percent in FY22. Provisioning costs have declined to 2.1 percent (including COVID-19 related provisions) from the previous forecast of 2.3 percent for FY21 and are projected at 1.5 percent for FY22.
Outlook on PSBs Revised to Stable for FY22 from Negative
The regulatory reforms led to an increase in the capacity of public sector banks (PSBs) to collect AT I money, a high coverage of provision on legacy NPAs, overall structural support resulting in lower-than-expected COVID-19 tension, and minor surprises resulting from PSB amalgamation.
The fact that the GoI allocated Rs 345 billion in 4QFY21-FY22 for infusion into PSBs should also be appropriate for their near-term growth needs.
Outlook Remains Stable for Pvt Banks
In both assets and liabilities, private banks (Pvt Banks) continue to gain market share, though competing fiercely with PSBs. Most banks improved their capital buffers and controlled their investments proactively. Because of its superior product and service proposition, big Pvt banks will benefit from credit migration as growth revives, ICRA said.
Deposit Growth Continues Even with Lowest-ever Term Deposit Rates
Bank deposit rates have been the lowest ever in the last 10 years; but at the end of December 2020, the economy also saw an 11 percent year-higher deposit growth rate. A shocking reality is that the deposit rates of major Pvt Banks are much lower than those of the State Bank of India. As the economic cycle revives, Ind-Ra expects the deposit rates to increase as credit growth revives and capital market flows are strengthened.