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India Ratings raises bank credit growth expectation to 13% in FY23, maintains outlook

Within the banking universe, private sector banks are likely to continue to gain market share, though the pace of gains is likely to moderate as public sector banks expand the loan portfolio faster (Photo: Mint)Premium
Within the banking universe, private sector banks are likely to continue to gain market share, though the pace of gains is likely to moderate as public sector banks expand the loan portfolio faster (Photo: Mint)

The stable rating outlook for banks for FY23, the rating agency said, indicates their waning legacy asset quality issues, strengthened balance sheets, manageable covid-19 impact and expectations of improved profitability across the banking sector.

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MUMBAI: India Ratings and Research (Ind-Ra) on Monday said it has maintained the outlook banks at improving for the rest of 2022-23, as the banking industry’s health continues to be at its best in decades.

India Ratings has also raised its credit growth expectation in FY23 to 13% from 10% earlier. Factors driving this upward revision are multifold, it said. The rise in working capital demand even as capex is likely to see some moderation, given the build-up of macro uncertainties; with the adverse interest rate cycle there is a visible shift from capital markets to the banking system for longer term funding; and the revival in credit demand from the corporate segment is better than expected.

The key financial metrics are likely to continue to improve in the rest of FY23, backed by strengthened balance sheets and an improving credit demand outlook, especially for working capital, it said.

The stable rating outlook for banks for FY23, the rating agency said, indicates their waning legacy asset quality issues, strengthened balance sheets, manageable covid-19 impact and expectations of improved profitability across the banking sector.

“Within the banking universe, private sector banks are likely to continue to gain market share, though the pace of gains is likely to moderate as public sector banks (PSBs) expand the loan portfolio faster, supported by strong balance sheets and supportive credit demand in the system," it said.

The agency expects credit costs of PSBs and private sector banks to converge and trend lower; this could offset the likely increase in deposit costs for the banks. However, private sector banks are likely to gather pace on deposit accretion, supported by the offering of better yields as competition for deposits intensifies, it added.

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