Many public sector banks struggling with weak assets and high borrowing costs: S&P Global Ratings

While the state-owned State Bank of India (SBI) and major private banks have overcome their asset quality challenges, the same cannot be said for many other Indian public sector banks (PSB ), said S&P Global Ratings in its latest research report on the global banking scene.

According to the report, many large PSBs are still struggling with weak assets, high borrowing costs and poor earnings and the polarization of bank performance will persist.

Simply put, the cost of credit is the value of loan losses/bad loans.

“Similarly, we expect a mixed performance for financial companies (fincos). The asset quality of these fincos is often lower than that of large private sector banks,” the report notes about the banking and financial sector. Indian.

The global credit rating agency said India’s economic growth outlook is expected to remain strong over the medium term, with gross domestic product (GDP) growing by 6.5% to 7% annually in fiscal 2024. -2026.

“We expect weak banking sector lending to decline to 4.5% to 5% of gross lending by March 31, 2024. Similarly, we expect credit costs to normalize to 1.2% for the fiscal 2023 and will stabilize at around 1.1% to 1.2% for the next two years.This makes credit costs comparable to other emerging markets and India’s 15-year average said S&P Global.

Over the next few years, S&P Global expects loan growth in India to remain somewhat in line with the trajectory of nominal GDP and loan growth to the retail sector to continue to outpace that of the sector. companies.

Corporate borrowing is also accelerating, but the uncertain environment could retard growth related to investment spending, the report notes.

“The shift to bank financing from capital market financing is also leading to a pick-up in corporate loan growth. Deposits may struggle to keep pace, leading to a weaker credit-to-deposit ratio,” said S&P Global.

According to the report, the credit-to-deposit ratio has improved over the past few years.

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