Bank profitability to remain healthy despite some moderation: Moody’s
Indian Banks' profitability will remain at healthy levels despite slight moderation on account of declines in net interest margins (NIMs) according to global ratings firm Moody’s.
Also, higher risk weights for exposures to non-bank finance companies (NBFCs) and unsecured retail loans will result in a slight moderation in banks' capital ratios. But their capitalization will still remain strong, it said.
NIMs will decline marginally as banks reprice maturing deposits at higher rates to fully reflect previous increases in interest rates. A slowdown of growth in higher-yielding loans after the Reserve Bank of India (RBI) increased risk weights for riskier loans to NBFCs and unsecured retail loans will also contribute to falls in NIMs, the ratings firm said.
“Still, we expect the system-wide return on assets (ROA) to remain healthy, at about 1.1%, in fiscal 2024-25” Moody’s said.
The banking sector's profitability has improved substantially in the past five years mainly because of decreases in loan-loss provisions amid improvements in asset quality. The sector’s ROA increased to 1.2% in fiscal 2022-23 from -0.2% in fiscal 2017-18.
“ We expect banks' non performing loan (NPL) ratios will continue to fall as the operating environment improves” it said. The system-wide NPL ratio dropped to 3.2% as of the end of September 2023 from a peak of 11.2% at the end of March 2018 because of recoveries and write-offs of legacy problem loans.
Slippage ratios – or the ratios of newly accredited nonperforming assets to total
