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India Ratings and Research, on Monday, said it has revised its outlook on the overall banking sector to ‘stable’ for 2021-22 from ‘negative’.
“This is because substantial systemic measures have reduced the system-wide Covid-19-linked stress below the expected levels. Banks have also strengthened their financials by raising capital and building provision buffers,” it said in a statement.
“The regulatory changes led to an improvement in public sector banks’ ability to raise AT-1 capital, a high provision cover on legacy non performing assets, overall systemic support resulting in lower-than-expected Covid-19 stress, and minimal surprises arising out of amalgamation of PSBs,” it said.
For private sector banks it maintained the stable outlook, noting that they would continue to gain market share, both in assets and liabilities, while competing intensely with state-run lenders.
“Most have strengthened their capital buffers and proactively managed their portfolio,” it said.
India Ratings also expects that overall stressed assets (GNPA and restructured) could increase 30 per cent for the banking system – the increase is almost 1.7 times in the retail segment in the second half this fiscal. The stock of stressed retail assets for PSBs could increase to 2.9 per cent in 2021-22 from 2.1 per cent this fiscal, while it could increase from 1.2 per cent to 4.3 per cent for private banks.
It estimates GNPAs at 8.8 per cent in the current fiscal and 10.1 per cent next fiscal, and stressed assets at 10.9 per cent.
Provisioning cost has fallen from its earlier estimate of 2.3 per cent for 2020-21 to 2.1 per cent (including Covid-19-linked provisions) and is estimated at 1.5 per cent for next fiscal, it further said.
The agency has upgraded its credit growth estimates for the current fiscal to 6.9 per cent from 1.8 per cent and 8.9 per cent in the next fiscal. This is due to the improvement in the economic environment in the second half of the fiscal year and the Centre’s focus on higher spending especially on infrastructure.
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