While maintaining a stable outlook on banks, India Ratings has increased its loan growth projection for FY23 to 13 per cent from 10 per cent due to factors such as an increase in working capital needs.
The demand to raise deposit interest rates is expected to increase. However, a decrease in credit might compensate for an increase in deposit fees.
According to Ind-Ra, the stable rating outlook for banks in FY23 reflects declining legacy asset quality difficulties, strengthening balance sheets, controllable COVID-19 effect, and prospects of increased profitability throughout the banking industry.
The factors driving these upward revisions, according to the ratings agency, include a rise in working capital demand even as capex is likely to moderate due to the accumulation 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, particularly in sectors such as infrastructure and chemicals.
Ind-Ra reaffirmed the entire banking sector’s prognosis as improving for the remainder of FY23, as the banking system’s health remains at its strongest in decades.
The major financial indicators are expected to improve further in the remainder of FY23, supported by strengthening balance sheets and an improving credit demand forecast, particularly for working capital, according to the ratings agency.
According to Ind-Ra, private sector banks will continue to acquire market share within the banking universe, albeit the rate of increase will likely slow as public sector banks (PSBs) expand the loan portfolio quicker, supported by robust balance sheets and supporting credit demand in the system.
According to Ind-Ra, system-level credit growth of 15.5 per cent year on year continued to outpace deposit growth of 9.5 per cent as of August 26, 2022, intensifying competition for deposits among banks due to a widening current account deficit (CAD) and capital outflows, which are estimated to have reached 3.4 per cent of GDP in Q1 FY23.
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