India Ratings and Research (Ind-Ra) has maintained a stable outlook on the banking sector for 2021-22 supported by the continuing systemic support that has helped manage the system-wide COVID-19 linked stress. While, it expects an increase in stressed assets in retail and MSME segments by end-March. It also estimates gross non-performing assets (GNPA) of the banking sector to be at 8.6 percent and stressed assets at 10.3 percent for fiscal 2021-22.
According to the report, banks will continue to strengthen their financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years. It said its stable outlook on large private banks indicates their continued market share gains both in assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and proactively managed their portfolio.
The report further stated that outlook on PSBs takes into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18-FY21 and further Rs 0.2 lakh crore provisioned for FY22). The agency has a negative outlook on five banks (about 6.5 per cent of system deposits), driven primarily by weak capital buffers and continued pressure on franchise. It estimates that the asset quality impact in the retail segment has been higher for private banks with a median rise of over 100 per cent in gross NPAs over Q1 FY21 to Q1 FY22 (about 45 per cent for PSBs).
