Better asset quality to drive banks’ credit, earnings in FY22: ICRA

New Delhi, Dec 28 : Improved asset quality, along with lower credit provisions, could drive better profitability for banks and rejuvenate their lending decisions, ICRA Ratings said on Monday.
Low interest rates, improved business volumes, better job prospects and income levels could also stimulate credit demand next year, the agency said.
“This, coupled with better competitive positioning of banks vis-a-vis other lenders driven by steep decline in cost of deposits, could improve bank credit growth to 6-7 per cent in FY2022 from an estimated 3.9-5.2 per in FY2021 and 6.1 per cent in FY2020,” the agency said in a statement.
“As moratorium on loan repayments is over and though we await the Hon’ble Supreme Court directive of on asset classification, the Gross NPAs and Net NPAs for the banks are likely to rise in near term to 10.1-10.6 per cent and 3.1-3.2 per cent, respectively, by March 2021 from 7.9 per cent and 2.2 per cent, respectively, as of September 2020 and the resultant elevated credit provisions during H2 FY2021 as well.” However, it expects net NPAs and credit provisions will subsequently trend lower in FY2022 as the banks have reported strong collections on their loan portfolio with most banks reporting collections of over 90 per cent.
“The loan restructuring requests much lower than previously estimated which has been supported by sharper than expected improvement in economic activities as well liquidity support through emergency credit line guarantee scheme.”