Better recovery of bank NPAs, provisioning declined to continue in 2022: ICRA
The recent improvement in the recovery of non-performing assets and the decline in loan provisioning in the banking sector are expected to improve further in the coming year, rating agency ICRA said.
As a result, improving these parameters has contributed to better profitability of banks, the rating agency said.
However, moderate credit growth and excess liquidity continue to weigh on the industry’s profit margins.
âThe banking sector did well in 2022, despite the challenges posed by the second wave of Covid-19 … Even in the absence of relief measures such as the moratorium on loan repayments or the moratorium on classification NPA, which were authorized in the first wave. , banks were able to reduce their NPAs, âsaid Anil Gupta, vice president and sector head at ICRA.
For small finance banks, the Covid-19 pandemic had a significant impact on performance during fiscal years 21 and H1 22 in terms of growth, asset quality and profitability.
âAsset quality has been negatively affected as the product segment for SFBs is largely unsecured, with an emphasis on the self-employed segment, which is more vulnerable to income shocks,â said Sachin Sachdeva, vice -President and Head of Sector at ICRA.
In particular, microfinance constitutes the largest segment of products for these institutions.
The rating agency expects the SFB sector to see an improvement in the growth of assets under management in FY22 compared to FY21, but asset quality metrics are expected to remain weak. which would thus maintain high credit costs and therefore moderate profitability.
For non-bank financial corporations, including housing finance companies, the rating agency believes their growth in assets under management in FY 22 would be four to six percent lower given the impact of the second wave of the pandemic and all other regulatory changes.
But, this estimate did not take into account the possible impact of the new variant – Omicron.
âThe published asset quality figures would be impacted in the short term due to the tightening of regulations, which could lead to profit difficulties for some players (NBFC),â said AM Karthik, vice president and chief executive officer. rating agency sector. .
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