India's scheduled commercial banks saw robust growth last financial year. Credit growth was strong, non-performing assets (NPA) were significantly lower and profits were high. The trend is likely to continue this year, with NPAs expected to decline further and credit growth likely to remain strong, although some moderation in credit expansion and margins is seen after a record 2022-23 financial year.
Credit ratings agency ICRA sees credit growth of 12.1 per cent to 13.2 per cent, with incremental credit expansion at Rs 16.5 lakh crore to Rs 18 lakh crore in the current financial year ending March 2024.
"Credit growth remains robust despite some moderation. Even at the anticipated pace of growth for FY2024, incremental credit expansion would be the second highest ever at Rs 16.5-18.0 lakh crore, next only to the record level of Rs 18.2 lakh crore last year," said Anil Gupta, senior vice-president and co-group head at ICRA.
A major driver of credit growth in recent times has been the retail segment, with demand for secured and unsecured loans seeing strong traction. From 18 per cent in March 2013, the share of retail in overall bank credit rose to 32 per cent as on March 31, 2023, ICRA noted. There is a need to monitor asset quality in this segment, say analysts.
"Even as the retail segment has performed well, the material weakening of macro-economic conditions could exert pressure on the debt-servicing abilities of borrowers and we remain watchful of its impact on the asset quality of lenders," said Gupta.
Even the Reserve Bank of India had flagged concerns around rising gross NPAs in credit card segment earlier this year.
While the retail segment may need to be watched out for, overall NPAs of banks have been falling further this year. ICRA sees gross NPAs of banks (13 state-owned banks including IDBI Bank and 18 private banks) at 3.0 per cent this year, lower than the 3.7 per cent last year. In absolute terms, gross NPAs this year are seen at Rs 4.6 lakh crore, versus Rs 5.3 lakh crore last year.
Net NPAs this year are seen at 0.8 per cent, compared with 0.9 per cent in 2022-23.
The net interest margins (NIMs) of banks, however, are seen contracting by 20-25 basis points as interest rates have risen and deposits get re-priced at higher rates. ICRA noted that credit costs, which are estimated to remain at 1 per cent of advances in the current financial year, in-line with 2022-23, should allow banks to comfortably withstand the margin compression.