ICRA: Banks will continue to provision loans in 2022 despite their improved NPA recovery.

New Delhi, December 25, 2008 : .

The rating agency ICRA stated that the recent improvements in asset recovery and the decline in provisioning loans to the banking sector will continue to be a positive sign for the futureThe rating agency stated that banks have seen a rise in profitability due to these parameters.

However, the sectors profit margins are still being hampered by subdued credit growth as well as excess liquidity "Despite the difficulties posed by Covid-19, the banking sector managed to navigate well in 2022." Banks were able reduce NPAs even in the absence relief measures like a moratorium on loan repayments and a standstill on NPA class, both of which were permitted during the first wave," stated Anil Gupta (Vice-President, Sector Head, ICRA).

The Covid-19 pandemic had a significant impact on the financial performance of small banks during FY21/H1FY22, in terms both growth and asset quality.Sachin Sachdeva (Vice-President, Sector Head, ICRA) stated that "the asset quality was adversely affected as the product segment of SFBs for SFBs are largely unsecured with an emphasis on the self-employed section, which is more susceptible to income shocks.

" Microfinance is the most important product category for these institutions.According to the rating agency, the SFB sector will see an improvement in asset undermanagement growth between FY21 and FY22, however, the asset quality metrics are likely to be weaker, which could lead to higher credit costs, and therefore lower profitability.

The rating agency believes that non-banking financial institutions, such as housing finance firms, would see their asset under management growth fall by four to six percent in FY22, taking into account the effects of the second pandemic wave and other regulatory changes.However, the estimate did not take into account Omicrons possible effect.A.M.Karthik (Vice-President, Sector Head, rating agency) stated that the reported asset quality numbers will be affected in the short term due to tightened regulations.This could cause earnings-related headwinds in some (NBFC), players.

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