New Delhi, Oct 20 (FN Agency) Rating agency ICRA expects fresh Non Performing Assets (NPA) generation rate to remain elevated at Rs 0.7-0.8 trillion (2.8-3.2 per cent) during Q2 of financial year 2022 but moderate to Rs 1.1-1.2 trillion (2.0-2.4 per cent) during H2 of FY2022 as the impact of second wave wanes. “Considering that 30-40% of the loan book was under moratorium during Q1 FY2020 across most banks, the loan restructuring at 2.0% of advances after the second wave is a positive surprise and much lower than our earlier estimates. Despite the positive headline numbers, we continue to be watchful of the asset quality, given the elevated levels of the overdue loan book and for the performance of the restructured loan book,” Anil Gupta, Vice President – Financial Sector Ratings, ICRA Ratings, said.
The agency also estimated that the Gross NPAs and Net NPAs were expected to further decline to 6.9-7.0 per cent and 2.2.-2.3 per cent by March 2022 which will continue to be a relief for the bottom-line of lenders. Despite expectations of moderation in gains on bond portfolios because of expectations of rising bond yields in FY2022, the Return on Equity for banks is likely to remain steady at 4.4-7.6 per cent for public sector banks as against 5.1 per cent in FY2021 and 9.5-9.9 per cent for private sector banks as against 10.5 per in FY2021. The PSBs may not need the capital budgeted by the Government of India (GoI) for FY2022 even with enhanced capital requirements. However, it provisions for any unforeseen events and shall provide confidence to banks as well as investors and credit growth, the agency said. “With the improved capital and profitability position of public banks, which accounts for a ~62% share in bank loans, and abundant liquidity in the banking system, supply of credit does not appear to be a constraint,” Gupta said. Nevertheless, revival of credit demand and the willingness of banks to push growth will be the key drivers of the overall credit growth in the economy. We continue to maintain our credit growth estimate of 7.3-8.3 per cent for banks for FY2022 compared to 5.5 per cent for FY2021,” he added.