India Ratings Increases FY23 Bank Credit Growth to 13%

On Monday, India Ratings and Research raised its credit growth expectation to 13% in FY23 from 10% earlier. It stated that the factors driving the upward revision are multifold. The revival in credit demand from corporate segments is better than expected.

The key financial metrics will continue to improve in the rest of FY23, backed by an improved credit demand outlook and strengthened balance sheets, especially for working capital. Private sector banks will continue to gain market share within the banking sector. However, the momentum of the gains is likely to moderate as Public Sector Banks (PSBs) expand the loan portfolio faster, supported by credit demand and solid balance sheets in the system.

India Ratings and Research expect credit costs of PSBs and private sector banks to trend lower. It could offset the increase in deposit costs for the banks. However, the private sector banks will gather pace on deposit accretion, supported by offering better yields as competition for deposits intensifies.

As of 26 August 2022, system-level credit growth stood at 15.5% against 9.5% on the deposit front, intensifying deposit competition as lenders jostle to arrange funds for loan demand. The deposit rates will increase because of increased risk appetite and record cash holdings amongst banks, leading to higher deposit competition.

The stable rating outlook for banks indicates their strengthened balance sheets, waning legacy asset quality issues, expectations of improved profitability and manageable Covid-19 impact across the banking sector for FY23. The rating agency also stated that banks are better placed to absorb the impact of the rising yield in the current upward trending interest rate cycle than in the past.

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