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Domestic rating agency ICRA has revised banking sector outlook to 'positive’ on healthy asset growth, improving asset quality and stronger capital buffers. It expects asset quality to improve to a decadal best of 4 per cent from a gross non-performing assets (NPAs) perspective by the end of FY24. The banking system's credit growth will slow down to 11-11.6 per cent in FY24, after a very healthy growth of 15.2-16.1 per cent expected in FY23.

According to the report, a bulk of the credit growth story will be led by state-owned lenders which are in far better shape now having recognised and provided for loan losses and also after some capital infusions, adding that the market share gains for private sector lenders will slow down. It estimated that public sector lenders will witness a credit growth of 13.4-14.1 per cent in FY23 and 9.5-10.1 per cent in FY24, adding that the same for private sector banks will be 14.5-15.5 per cent and 12.6-13.5 per cent.

The agency further said the state-owned banks' net NPAs will come down to 1.3-1.6 per cent by FY24-end, while the same for private sector lenders will be 0.8-0.9 per cent. The restructured assets will be under 1 per cent by FY24. On the capital adequacy front, it said there will not be any significant fund infusion requirement to attain a 10-12 per cent asset growth in FY24. It expects the core tier-I buffers to be at 13.8-14.1 per cent in FY23 as against 14.3 per cent in FY22.