The Indian banking sector’s return on equity is projected to moderate.
For private sector banks the return on equity is estimated to decline to 12.2% in the current financial year from 14.3% in the year ended March 2024 and 16.1% recorded in 2022-23.
For public sector banks, the return on equity is estimated to decline to 12% in 2024-25 from 13.9% and 15% recorded in the previous two years, respectively.
On the asset quality front, the rating agency expects a further moderation in the gross non-performing assets ratio for the banking system at 2.2% by March 2025 from 3% in March 2024.
“This will pose significant challenges for the banks to pursue credit growth as their on-balance sheet liquidity has been deployed towards strong credit growth during the last two years,” the rating agency said.
The Indian banking sector’s return on equity is projected to moderate. For private sector banks the return on equity is estimated to decline to 12.2% in the current financial year from 14.3% in the year ended March 2024 and 16.1% recorded in 2022-23. For public sector banks, the return on equity is estimated to decline to 12% in 2024-25 from 13.9% and 15% recorded in the previous two years, respectively.
On the asset quality front, the rating agency expects a further moderation in the gross non-performing assets ratio for the banking system at 2.2% by March 2025 from 3% in March 2024. The gross NPA by the end of the current financial year will be the lowest since September 2011.
Credit to deposit ratio (CD ratio) for the banks is estimated to have increased to 78% (excluding the merger of HDFC Limited) as on March 22, 2024, sharply higher than 75.7% as on March 24, 2023, and 71.9% recorded on March 25, 2022.
“This will pose significant challenges for the banks to pursue credit growth as their on-balance sheet liquidity has been deployed towards strong credit growth during the last two years,” the rating agency said.
