An India Ratings and Research report on Thursday said banks are likely to see gradual and selective credit growth pick-up while credit costs may stay high.
“With retail and SME likely to be growth drivers till investment demand picks up, private sector banks and large PSBs are likely to grow faster than mid-sized PSBs with weaker retail asset franchise and capital constraints on growth,” the report said.
The Reserve Bank of India has been voicing concerns over the lack of transmission of interest rate cuts into the economy. Credit off-take has remained at 11.06%, according to the recent RBI data.
“Ind-Ra expects monetary easing to aid loan growth pick-up in FY16, after a likely drop in FY15. Recent credit growth has come largely from retail and agri sectors (75% of incremental credit March-December 2014), while new loans to large and mid-sized corporates have dropped off,” India Ratings said in the report.
Banks with large asset-liability management gaps may, however, see higher funding costs due to elevated refinancing pressure, compromising their capability to effectively transmit monetary easing, it said. “Ind-Ra expects impaired assets (gross NPL, standard restructured loans, outstanding receipts from asset reconstruction companies and discom bonds) to clock 13% of loans by March 2016 and see a flatter trajectory thereon,” the report said.
The report also mentioned that credit costs are likely to remain high because of the low provision coverage for the sector and this may affect the profitability of banks. “The profitability of banks is likely to witness another year of pressure as credit costs remain elevated, with higher write-offs accompanying high delinquency,” it added.
It also indicated a possible rise in infrastructure bond issuances in FY16. FY15 so far has seen R20,000 crore of infrastructure bonds and Ind-Ra expects a further R30,000-40,000 crore of issuances in FY16. It added that, by March 2016, there could be a requirement of R60,000-70,000 crore via additional tier-I bonds.