Banks
The gross non-performing assets (NPA) ratio of banks is expected to improve to 3.3 percent in next financial year from 4.2 percent in FY23, India Ratings said. A loan turns to NPA if there are no repayments of interest or principal for a period of 90 days.
Private bank’s gross NPA is seen improving to 2 percent in FY24 from 2.5 percent FY23, and public sector banks improving to 4.1 percent from 5.2 percent, the release said.
“This incorporates the effect of GNPA write-off trend that the banking system is witnessing,” the ratings agency said.
The ratings agency expects low net additions to continue in FY24.
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Further, they expect stressed asset pools to shrink faster hereon. The restructured pool stood at Rs 1.7 lakh crore in the first nine months of the current financial year from a peak of 2.4 percent in the year-ago period.
Profitability
On the profitability front, the ratings agency expects banks’ net interest margins to decline in FY24 from current levels on the back of an expected increase in deposit rates and a part of this may be offset by normal treasury operations as the yield curve flattens.
However, operating costs are expected to sustain and credit costs to remain in the 1-1.5 percent range, the agency said.
“In FY23 and FY24, the agency expects the banking system’s credit cost to continue to be in the range of 1-1.5 percent ceteris paribus for both, PSBs and Pvt Banks and thereby the banking system impact of ECL guidelines notwithstanding,” India ratings said.
Deposits
Besides, the ratings agency expects challenges likely to emerge for banks for mobilising deposits and deciding the pricing of deposits in the next financial year.
The agency said deposit repricing will continue to happen in a competitive environment especially as banks have drawn on almost Rs five lakh crore of liquidity since March 2022 that has enabled reasonably priced and evenly paced deposit mobilisation.
