caalley logo

The alley for Indian Chartered Accountants

Banks' consolidated balance sheet hits double-digit growth in FY22: Report

Mumbai, Dec 27, 2022

The consolidated balance sheet of Indian banks notched double-digit growth in 2021-22, after a gap of seven years, led by credit growth that accelerated to a ten-year high in the first half of the year, the central bank said in a report on Tuesday.

Banks' gross non-performing asset ratio has been declining sequentially and reached 5% as of end-September, the Reserve Bank of India said in its report on the Trends and Progress of Banking in India.

Here are some highlights from the report:

Outlook for banking sector
The report noted that banking stocks plummeted globally in 2020 but recovered during 2021 on liquidity infusions by central banks, turnaround in economic activity and a positive growth outlook. This reversed in early March 2022 as the war in Europe ushered in a new wave of uncertainty.

Since then, the equity prices of banks have revived, mainly reflecting their robust capital positions and improvement in profitability and asset quality, it said.
It further added that as global growth is set to deteriorate in 2022 and with rising prospects of a recession in 2023, credit growth, could procyclically decelerate across major economies which, in turn, could shrink bank profitability.

"While banks weathered the pandemic with high capital buffers and improved asset quality, going forward, they face a highly uncertain outlook, with the possibility of continuing geopolitical tensions, tighter monetary and liquidity conditions and potential adverse spillover effects on profitability and asset quality," the report said.

Raise deposit rates
The report further stated that banking sector remained resilient in 2021-22, but lenders may have to raise deposit rates more to meet a surge in credit demand.

RBI has raised rates aggressively this year to tame inflation. While banks have swiftly transmitted the hikes to their lending rates, deposit rates have been laggards for most.

"During 2021-22, as credit growth picked up and deposit growth moderated, the incremental credit-deposit (C-D) ratio reached a four-year high," the RBI said the report.

GNPAs decline
The gross non-performing assets (GNPAs) of banks declined to 5.8% but the present macroeconomic environment can impact lenders' health, the RBI report said.

The GNPAs, which touched a peak in FY18 following the asset quality review, have been declining sequentially to reach 5% in September, the RBI said in the 'Trends and Progress of Banking in India' report for FY22 released on Tuesday.

The number stood at 5.8% in March 2022, according to the report which also had a strong commitment by the RBI to be not complacent, given the present environment.

"Although presently the Indian banking sector remains robust and resilient with improved asset quality and strong capital buffers, the policymakers remain mindful of dynamically evolving macroeconomic conditions that may impinge on the health of regulated entities," the report said.

The decrease in the GNPAs was attributed to lower slippages and also a reduction in outstanding GNPAs through recoveries, upgradations and write-offs, the report said.

The reliance on large borrowers for loans seems to be going down with the increase in the retail business, and accounts of over Rs 5 crore accounted for 47.8% of the outstanding credit in FY22 as against 48.4% in FY21.

However, such accounts' contribution to overall dud assets improved more substantially to 63.4% of the overall NPAs in FY22 as against 66.4% in FY21.
(With inputs from agencies)

[The Times of India]

Read more on:
Don't miss an update!
Subscribe to our newsletter