Bombay : The turn of fortunes in India’s financial sector has revived optimism among pundits and analysts, who believe rising credit growth and easing bad debts herald better days ahead.
Experts believe the worst may be over for the sector which has struggled with non-performing assets (NPAs) and sluggish growth. Still, the third wave of covid-19 could pose challenges in the months ahead, driving up bad debts and possibly changing the outlook.
“We expect consumption, which has lagged so far, to pick up broadly as vaccination rates cover the entire eligible population. Improving final demand (consumption and exports) should push up capacity utilization rates, alongside a favorable political environment, which should boost private investment from the second half of 2022,” the analysts said. of Morgan Stanley in a note to clients on January 19.
Morgan Stanley believes the Reserve Bank of India (RBI) will begin policy normalization with a reverse repo rate hike in February. He also expects repo rate hikes from the April policy meeting, with cumulative hikes of 125 basis points in 2022. This normalization, analysts say, would benefit banks as their loans are repriced. .
Bankers said demand for business loans was increasing and things would soon improve as investment plans materialize, although demand is mainly for working capital and not term loans. Granted, retail lending still does the heavy lifting for banks.
“It affects all segments. Some of it is capital expenditure, but most of it working capital. It also includes public enterprises. Yes, the government spends a lot on infrastructure and wherever we have opportunities that fall within our risk appetite, we are happy to finance them,” said Sandeep Batra, Executive Director, ICICI Bank.
ICICI Bank on Saturday reported 18% growth in its domestic loan portfolio. While retail lending was up 19% year-on-year, the domestic business and other segment grew 12.5%. The bank’s personal loan portfolio ₹5.02 trillion as of December 31 is mainly driven by mortgage loans, a segment which increased by 23% to reach ₹ 2.78 trillion.
According to CareEdge Ratings (formerly Care Ratings), over the past two to three years, credit growth has also been depressed due to the resolution of high-value NPAs, which has lowered the numbers.
“With the resolution of high-value NPAs now largely complete, pressure on corporate headlines now looks better. However, the banking sector is optimistic about corporate lending growth as business activity picks up and companies protest. an interest in re-leveraging Credit growth has been underpinned by retail and MSME lending,” the rating agency said in a report on Saturday.
Some banks have decided to target specific business segments, instead of going all out. For example, IDBI Bank focuses on lending to medium-sized businesses or those whose revenues can reach ₹750 crore. The bank said it was seeing significant growth in this segment and not only increasing its exposure to existing borrowers, but returning to those it had to drop when placed under the framework. rapid corrective action (PCA) from the banking regulator.
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