Banks’ asset quality to improve in FY24 on low net slippages and write-offs, says ICRA

Karthik Srinivasan, Group Head, Financial Sector Ratings, ICRA, said that one may expect some drop in profits in percent terms but in absolute numbers, banks are expected to report growth.

Banks in India are expected to show further improvement in their asset quality in the financial year 2023-24 due to low net slippages and write-offs, ratings agency ICRA said.

“We are expecting banks’ gross non-performing assets (GNPA) and net NPA to improve at around 2.8 to 3 percent and 0.8 to 0.9 percent respectively,” ICRA said in a webinar on September 14.

The agency said that headline metrics of the banking sector to remain on an improving trajectory on the back of controlled net additions (net of recoveries and upgrades) to non-performing advances (NPAs) and reasonably strong credit growth.

Further, Anil Gupta, Vice President, Financial Sector Ratings, said that fresh NPA generation is in check and slippages are expected to be low.

“Alongside asset quality, we expect slippages and write-offs to be low in FY24,” Gupta said.

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Additionally, with growth, Gupta highlighted that there are some risks which may affect banks’ overall performance.

“Severe economic shock, regulatory developments and expected credit loss (ECL) transition costs may affect the overall performance,” Gupta said.

Banks profit

In the April-June FY24 quarter, banks, both public and private sector reported robust profits.

A Moneycontrol analysis of bank earnings in this quarter showed that they have recorded a major improvement in overall asset quality, indicating an improvement in the real economic conditions on the ground. In the April-June quarter of FY24, banks reported 30-100 percent growth in net profit, which is almost in line with or above the estimates of brokerage firms.

On banks’ profit in FY24, Karthik Srinivasan, Group Head, Financial Sector Ratings, ICRA, said that one may expect some drop in profits in percent terms but in absolute numbers, banks are expected to report growth.

“Q1 not providing a full picture. There may be some drop in percentage terms in banks’ profit but in absolute numbers, banks are expected to report growth,” Srinivasan said.

Also read: Easing load of bad debt, rising income from interest boost bank earnings

Unsecured lending

In the last few quarters, banks have aggressively grown their unsecured retail portfolio. Here, the Reserve Bank of India (RBI) has highlighted the concerns with aggressive growth in the unsecured portfolio.

Gupta highlighted that in the retail segment, unsecured loan book has risen. “The vulnerable retail book remains low and marginal. But there is a need to remain cautious in terms of any macroeconomic risks,” he said.