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Overall Banking Sector To Improve For Rest Of FY23: India Ratings and Research

Ind-Ra has revised its banking credit growth estimate for FY23 to 13.0 per cent YoY from 10.0 per cent

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India Ratings and Research (Ind-Ra) has said that the outlook on banking sector remains positive in FY23 as it expects things to improve in the space for the rest of the year.

The credit rating agency has maintained that the banking systems’ health is the best currently in decades and that key financial metrics are likely to improve in FY23. This improvement will be supported by better balance sheets and an improving credit demand outlook.

By 26 August, Ind-Ra has observed system-level credit growth of 15.5 per cent YoY, which continued to outpace deposit growth of 9.5 per cent YoY. This has intensified competition among banks as they look fight to secure deposits, on account of widening current account deficit (CAD) and outflows from the capital market.

Moreover, the credit rating agency has revised its banking credit growth estimate for FY23 to 13.0 per cent YoY from 10.0 per cent.

“The factors driving this upward revisions include the following: i) the rise in working capital demand even as capex is likely to see some moderation, given the build-up of macro uncertainties; ii) with the adverse interest rate cycle, there is a visible shift from capital markets to the banking system for longer term funding; iii) the revival in credit demand from the corporate segment is better than expected, especially in sectors such as infrastructure and chemicals”, Ind-Ra said in a statement.

According to Ind-Ra, the average amount of CDs raised by banks in a month rose sharply to Rs 400 billion in 1QFY23 (3QFY22: Rs 80 billion; 4QFY22: Rs 260 billion). The outstanding amount increased threefold to Rs 2.35 trillion at end-July 2022 from Rs 0.8 trillion at end-December 2021.