Bank credit growth is expected to decelerate sharply to 6.5-7 percent in FY2020 from 13.3 percent in FY2019, following limited incremental credit growth the current fiscal till date, said ratings agency Icra in a research note.
Karthik Srinivasan, group head- financial sector ratings at ICRA, said once the economy starts picking up, the growth rates could be better in the next financial year.
The second round of RBI’s Operation Twist could benefit banks from the mark-to-market gains, said Srinivasan. “With low credit growth and deposit growth being descent for the year, the banks are sitting on a huge amount of excess statutory liquidity ratio (SLR) at this point in time."
"Given that a lot of it would be in available for sale (AFS) or the held to maturity (HTM) category, they definitely should be benefiting from the mark-to-market gains on this portfolio would help the banks to make some provision on their asset quality and possibly cleanup more by the time the December results are out,” he added.
Even in a high growth scenario, whereby incremental credit rises to Rs 6.5-7 trillion during the second half of FY2020, Icrea projects a 40-45 per cent y-o-y decline in incremental net bank credit to Rs 6.3-6.8 trillion during FY2020 from Rs 11.9 trillion during FY2019.
“We expect the asset quality pains to be largely done away with and with most of the provisions being done either by December or by March, so to that extent, we believe the provisioning requirements would come down in next financial year which in itself along with a hopeful credit growth one should see better RoEs and RoAs for both, the public sector as well as private sector banks for next financial year,” he said.
Talking about loan growth for 2020, Srinivasan said, “It remains on the retail side and the services segment. Corporate demand still remains low with much lower levels of working capital utilization and lower capacity utilization for many of the corporates at this point in time.”
About capital requirement, he said, “From the capital point of view public sector banks have got adequate capital. Out of the Rs 70,000 crore odd which the government announced for the current fiscal, close to Rs 60,000 crore has been distributed and another Rs 10,000 crore should be sufficient as far as this year is concerned.”
“Our estimate, even if we were to keep a modest 6-8 percent kind of growth for next year on assumption basis, with expectations of improved profitability for next year the capital requirement for public sector banks should be far lower for next financial year. Yes, with capital markets improving maybe a few of them could also look at non-government avenues to raise capital and look at the expansion of their credit portfolio,” Srinivasan added.