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Crisil Projects Decline in Indian Banks' Profitability Amid Lower Treasury Gains
Indian banks' profitability to ease this fiscal on lower treasury gains, ECL provisions: Crisil
Image: The Economic Times
Crisil Ratings forecasts a decrease in the Indian banking sector's return on assets (RoA) to 1.1-1.2% this fiscal year, down from 1.3% last year, due to reduced treasury income and increased provisioning for expected credit losses. Despite this, RoA remains above historical averages.
- 01The return on assets (RoA) for Indian banks is projected to decline by 10-15 basis points to 1.1-1.2% this fiscal year.
- 02Net interest margin (NIM) is expected to stabilize at 2.9%, following a 20 basis point decline last fiscal year.
- 03Credit growth is anticipated at around 13%, while deposit costs are expected to rise due to competition for deposits.
- 04Provisions for expected credit losses (ECL) could increase by 5-10 basis points but will remain below 0.5%.
- 05Despite potential challenges, banks' NIM may benefit from floating rate loans repricing faster than fixed deposits.
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Crisil Ratings has projected a decline in the Indian banking sector's return on assets (RoA) to between 1.1% and 1.2% for the current fiscal year, down from 1.3% last year. This decrease is attributed to lower treasury income and pre-emptive provisioning in anticipation of the new expected credit loss (ECL) framework. Despite this decline, the RoA remains significantly above the 20-year average of 0.8% and the 10-year average of 0.6%. The net interest margin (NIM) is expected to hold steady at 2.9%, although rising deposit costs due to increased competition could affect profitability. Crisil also anticipates that total other income will soften slightly, primarily due to normalization in treasury income. Furthermore, while provisions for credit losses are expected to rise, they will stay below 0.5%. The agency's outlook suggests that even in adverse economic scenarios, banks may experience limited downside risk to profitability due to the nature of floating rate loans.
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The projected decline in profitability and rising provisioning costs could impact how banks manage their lending and deposit strategies, potentially affecting loan rates and availability for consumers.
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