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Improved collection of NPA from banks, decrease in loan provisioning to continue in 2022: ICRA

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The recent improvement in the recovery of non-performing assets (NPA) and the decline in loan provisioning in the banking sector should improve further in the coming year, said the rating agency ICRA.

As a result, the improvement in these parameters helped achieve better profitability for banks, the rating agency said.

However, weak credit growth and excess liquidity continue to weigh on industry profit margins. “The banking sector has sailed 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 status quo on the NPA classification, which were allowed in the first wave, banks were able to reduce their NPAs,” said Anil Gupta, Vice President and Sector Head at ICRA.

For Small Financial Banks (SFBs), the Covid-19 pandemic had a significant impact on the performance of the last fiscal year and the first half of the current fiscal year, in terms of growth, asset quality and profitability. “Asset quality was negatively affected as the product segment for SFBs is largely unsecured, with a focus on the self-employed segment, which is more vulnerable to income shocks,” said Sachin Sachdeva, vice -president and head of sector at the ICRA.

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In particular, microfinance constitutes the most important product segment for these institutions. The rating agency expects the SFB sector to see improved growth in assets under management in the current fiscal year, compared to the prior fiscal year, but asset quality metrics are expected to remain low, thereby keeping borrowing costs high and hence profitability. Thames.

For non-banking financial companies, including housing finance companies, the rating agency believes that growth in their assets under management in the current fiscal year would be 4-6% lower, considering 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.

“Released asset quality numbers would be impacted in the short term given the tightening of regulations, which could lead to earnings headwinds for some players (NBFC),” said AM Karthik, vice president and chief sector to the rating agency. .

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