Banks set to clock better credit growth

Mumbai: India Ratings and Research (Ind-Ra) has revised its outlook on the banking sector to 'improving' from 'stable' for 2022-23, helped by better credit demand and strong balance sheet of lenders.

For next fiscal year, the agency expects credit growth to pick up to 10 per cent and sees gross non-performing asset (GNPA) ratio at 6.1 per cent.

"We have revised the outlook on the overall banking sector to improving for FY23 from stable, as the banking system's health is at its best in decades. The improving health trend that began in FY20 is likely to continue into FY23," the agency said.

Key financial metrics are likely to continue to show improvement in FY23, backed by strengthened balance sheets and an improving credit demand outlook with an expected commencement of the corporate capex cycle.

The agency's stable outlook on public sector banks (PSBs) for FY23 reflects reasonable capital buffers, low overhang of corporate stress in terms of expected slippages and manageable impact of Covid-19. It expects PSBs to look for growth across sectors and benefit from loan recoveries, considering their highest profitability in the past six years.