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'Banks' improved NPA recovery to continue in 2022'
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SME Times News Bureau | 26 Dec, 2021
The recent improvement in recovery of the non-performing assets and
decline in provisioning of loans in the banking sector are expected to
improve further in the coming year, rating agency ICRA said.
Accordingly, the improvement in such parameters has helped realise better profitability for the banks, the rating agency said.
However, subdued credit growth and surplus liquidity continue to be a drag on the profit margins for the sector.
"The
banking sector navigated well during 2022, despite the challenges posed
by the second wave of Covid-19... Even in the absence of relief
measures such as moratorium on loan repayments or standstill on NPA
classification, which were allowed during the first wave, banks were
able to reduce their NPAs," said Anil Gupta, Vice-President and Sector
Head at ICRA.
For small finance banks, the Covid-19 pandemic
significantly impacted the performance during FY21 and H1FY22 in terms
of growth, asset quality and profitability.
"The asset quality
was impacted adversely as the product segment for SFBs is largely
unsecured with a focus on the self-employed segment, which is more
vulnerable to income shocks," said Sachin Sachdeva, Vice-President and
Sector Head at ICRA.
Notably, microfinance constitutes the largest product segment for such institutions.
The
rating agency expects the SFB sector to witness improvement in asset
under management growth in FY22 as compared with FY21, but the asset
quality metrics are expected to remain weak, which would thereby keep
credit costs elevated and hence profitability subdued.
For
non-banking financial companies, including the housing finance
companies, the rating agency is of the view that their asset under
management growth in FY22 would be four-to-six per cent lower taking
into consideration the impact of the second wave of the pandemic and all
other regulatory changes.
But, this estimate didn't take into the account the possible impact of the new variant - Omicron.
"The
reported asset quality numbers would be impacted in the near term in
view of the tightened regulations, which could lead to earnings-related
headwinds for some (NBFC) players," said A.M. Karthik, Vice-President
and Sector Head at the rating agency.
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