Banking and Financial Sector Update - Financial trends and progress FY21: Key inferences to draw By ICICI Securities
Financial trends and progress FY21: Key inferences to draw
We draw the following inferences from the report on Trend and Progress of Banking - FY21 (released by the RBI):
* India credit-to-GDP is still markedly lower than the G20 average.
* Private non-financial corporations have been net savers, progressively increasing their deposits with SCBs, while their credit offtake has remained anaemic.
* Concerted strategies for timely capital infusion need to be carried forward by banks.
* Asset quality improved, partly attributable to imposition of the asset classification standstill. Write-offs were the predominant recourse for lowering GNPAs in FY21. Banks’ asset quality may get dented, going forward.
* Overall, restructured standard assets further increased to 1.8% at end Sep’21. 7.7% of MSME advances have been restructured under MSME restructuring schemes.
* More than half of the banks' new branches were opened in tier 1 and tier 2 centres in FY21.
* NBFCs’ credit intensity measured by the credit/GDP ratio has been rising consistently. NBFCs’ credit as proportion to SCBs’ credit has also risen.
* In FY21, the recovery in sectoral lending of NBFCs has been uneven. Credit to agriculture and services recorded absolute declines, while retail and industrial sectors expanded.
* NBFCs’ credit to MSMEs grew at 17.8% during FY21. ICCs, together with NBFCs MFI, are the main purveyors of MSME credit.
* NBFCs have been gradually swapping their short-term borrowings for longterm borrowings.
* Rating-wise, AAA-rated NCDs of NBFCs have a preponderant share in overall NCD private placements of NBFCs.
Global banks’ credit growth – advanced and emerging economies
* Korea and Japan credit growth remained robust even after the onset of the pandemic. Canada and UK are showing nascent signs of credit growth revival. A similar revival is taking root across countries in the Euro area, except in Greece.
* In EMEs, banks’ credit is conditioned by country specific macroeconomic circumstances and demand-side factors.
* Asset quality – Russia and India continue to have the highest NPL ratios; their asset quality did not deteriorate during the pandemic, as in other EMEs. The South African banking system has started showing signs of distress.
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