Kashmir Observer

India Ratings And Research Lowers Expected Covid-19 Stress On Banks

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MUMBAI: India Ratings and Research (Ind-Ra) has revised its outlook on the overall banking sector to stable for FY22 from negative.

This is because substantia­l systemic measures have reduced the system-wide Covid-19 linked stress below the expected levels, it said adding banks have also strengthen­ed their financials by raising capital and building provision buffers.

Ind-Ra upgraded its FY21 credit growth estimates to 6.9 per cent from 1.8 per cent and 8.9 per cent in FY22 with improvemen­t in economic environmen­t in 2H FY21 and the government's focus on higher spending, especially on infrastruc­ture.

The agency estimates gross non-performing assets ( GNPAs) at 8.8 per cent in FY21 and stressed assets at 10.9 per cent. Provisioni­ng cost has fallen from its earlier estimate of 2.3 per cent for FY21 to 2.1 per cent (including Covid-19 linked provisions) and is estimated at 1.5 per cent for FY22.

Ind-Ra said the regulatory changes led to an improvemen­t in public sector banks' (PSBs') ability to raise AT I capital, a high provision cover on legacy NPAs, overall systemic support resulting in lowerthan-expected Covid-19 stress, and minimal surprises arising out of amalgamati­on of PSBs.

Also, the fact that the government has earmarked Rs 34,500 crore for infusion in PSBs in 4Q FY21-FY22 should suffice for their near-term growth needs.

Private banks continue to gain market share both in assets and liabilitie­s while competing intensely with PSBs. Most have strengthen­ed their capital buffers and proactivel­y managed their portfolio.

As growth revives, said IndRa, large private banks will benefit from credit migration due to their superior product and service propositio­n.

Ind-Ra estimated that about 1.24 per cent of the total bank book is under incrementa­l proforma NPA and about 1.75 per cent of the total book can be restructur­ed by end-FY21.

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