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Banks’ consolidated balance sheet hits double-digit growth in FY22: Report

MUMBAI: The consolidated balance sheet of Indian banks notched double-digit growth in 2021-22, after a gap of seven years, led by credit growth that accelerated to a ten-year high in the first half of the year, the central bank said in a report on Tuesday.
Banks’ gross non-performing asset ratio has been declining sequentially and reached 5% as of end-September, the Reserve Bank of India said in its report on the Trends and Progress of Banking in India.
Here are some highlights from the report:
Outlook for banking sector
The report noted that banking stocks plummeted globally in 2020 but recovered during 2021 on liquidity infusions by central banks, turnaround in economic activity and a positive growth outlook. This reversed in early March 2022 as the war in Europe ushered in a new wave of uncertainty.
Since then, the equity prices of banks have revived, mainly reflecting their robust capital positions and improvement in profitability and asset quality, it said.
It further added that as global growth is set to deteriorate in 2022 and with rising prospects of a recession in 2023, credit growth, could procyclically decelerate across major economies which, in turn, could shrink bank profitability.
“While banks weathered the pandemic with high capital buffers and improved asset quality, going forward, they face a highly uncertain outlook, with the possibility of continuing geopolitical tensions, tighter monetary and liquidity conditions and potential adverse spillover effects on profitability and asset quality,” the report said.
Raise deposit rates
The report further stated that banking sector remained resilient in 2021-22, but lenders may have to raise deposit rates more to meet a surge in credit demand.
RBI has raised rates aggressively this year to tame inflation. While banks have swiftly transmitted the hikes to their lending rates, deposit rates have been laggards for most.
“During 2021-22, as credit growth picked up and deposit growth moderated, the incremental credit-deposit (C-D) ratio reached a four-year high,” the RBI said the report.

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