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Healthy loan book growth likely to drive profitability of banks in FY24

Analysts at the agency maintained a positive outlook on the banking sector amid expectation that credit growth in the banking sector in the financial year 2023-24

Banks credit growth

Aathira Varier Mumbai

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The profitability of banks is expected to show healthy growth in absolute terms, even if growth in per cent terms might differ during the financial year FY24 due to expectations of better growth in the loan book. The Public Sector Banks (PSBs) are likely to maintain the overall profitability above Rs 1 lakh crore, noted analysts at rating agency ICRA.

Karthik Srinivasan, senior vice president for financial sector ratings at ICRA, said, “There may be some drop in per cent terms in banks' profit, but in absolute numbers, banks are likely to report growth.”

Speaking at a webinar on Thursday, analysts at the agency maintained a positive outlook on the banking sector amid expectations that credit growth in the banking sector in FY24 will remain meaningfully strong, driving earnings growth.

Further, benign asset quality pressures will support lower credit costs. “The gross non-performing assets (GNPA) and net non-performing assets (NNPAs) are expected to decline to 2.8–3.0 per cent and 0.8–0.9 per cent, respectively, by March 2024 from 3.96 per cent and 0.97 per cent, respectively, as on March 31, 2023. This will be the best performance in over a decade, as per the projections of the analysts,” Srinivasan added.

Anil Gupta, vice president for financial sector ratings at ICRA, remarked that they expect fresh NPA generation to be in check, slippages and write-offs to be low in FY24. Previously, during the Covid-19 period, the recoveries were low, driving delinquencies, which is not expected to be seen in the future.

Further, the banking sector is expected to continue generating sufficient internal capital to meet its growing capital requirements. “The government is also not likely to infuse capital into the public sector banks; they will come to the market," Srinivasan noted.

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On the flip side, analysts noted risks from economic shocks, regulatory developments, and expected credit loss (ECL), which could affect the performance of the banks.

First Published: Sep 14 2023 | 4:13 PM IST

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