Crisis will increase due to low jobs and decline in income in service sector, banks will get strength
The retail loan segment will see a four-fold increase in debt owed by the end of the next financial year. This will happen due to less job creation and slow growth in the service sector. Fitch Group’s credit rating agency said this in its latest estimate.
NPA to reach 4.7% in retail loan segment
The rating agency has stated that non-performing assets (NPA) in the retail loan segment will reach 4.7% by March 2022. According to the agency, it will remain 1.60% by March 2021. Thus, it may increase up to four times next year. The agency says that the NPA of this segment will increase due to an increase in unsecured loans from private sector banks.
Banks’ gross NPA may remain 8.8% in 2021
The rating agecny has predicted that the gross NPA of banks in the current financial year i.e. 2021 may be 8.8%. However, in the next financial year i.e. 2022, it can reach 10.1%. While distressed assets, including gross NPAs and restructured loans, can reach 10.9%. According to the agency, provisioning costs may come down to 2.1% in 2021. It was earlier estimated to be 2.3% by the agency. Provisioning cost may remain 1.5% in FY 2022.
Banks outlook stabilized negatively for 2022
It has upgraded the outlook for banks for FY 2022. Now the agency has stabilized the banks outlook to negative. The agency upgraded outlook as the crisis associated with Covid-19 subsided. Liquidity support and emergency credit support to MSME have played a key role in this.
Banks will have a strong financial position
The rating agency said that banks will strengthen their financial position due to raising capital and provisioning. The agency forecast credit growth to be 6.9% in FY 2021. The agency had earlier said credit growth to be 1.8%. The agency estimates that credit growth could grow to 8.9% in FY 2022. Credit growth will increase next year due to improvement in economic activity during October 2020 to March 2021 and the government’s special focus on infrastructure spending.
Outlook of public sector banks also stabilized
The rating agency has also stabilized the outlook of public sector banks by upgrading them from negative. The outlook for public sector banks has been improved due to the improvement in raising AT 1 capital due to regulatory changes. More provision for bad loans, overall systemic support, reduced crisis related to Covid-19 has also supported the outlook of PSBs.
