Akin to the global gas markets, the Indian gas utilities sector, after facing significant volatility in prices and issues with the availability of LNG over the last two years, is now returning to a tentative state of normalcy. We expect gas consumption in the country to grow 6-7% YoY in FY2024, backed by softer LNG prices and an uptick in domestic gas availability. The CGD sector is expected to drive demand for natural gas in the country for the medium to long term as network coverage expands pan-India.
ICRA continues to maintain a positive outlook on Indian Bank sector, driven by strong incremental credit expansion estimates of Rs.16.5-18.0 trillion in FY2024 via-v-vis Rs.18.2 trillion in FY2023, translating to a YoY growth of 12.1-13.2% in FY2024 (15.4% in FY2023). This together with benign asset quality pressures would support earnings amidst the upward repricing of the deposit base. Accordingly, the internal capital generation would largely be sufficient to meet the growth requirements of banks. Furthermore, the headline asset quality metrics would continue to be on an improving trajectory, with the Gross NPAs and Net NPAs to decline to 2.8-3.0% and net NPAs to 0.8-0.9% by March 2024 from 3.96% and 0.97% respectively as on March 31, 2023 on the back of lower net-additions and strong loan growth.
ICRA expects the profitability of non-banking financial companies-microfinance institutions (NBFC-MFIs) to improve further to 2.7-3.0% in FY2024 and 3.2-3.5% in FY2025, from 2.1% in FY2023 This is seen on the back of higher margins and the lower credit costs. Margins will benefit from the growing share of the new portfolio originated at higher rates, post the implementation of the new MFI regulations in FY2023. On the growth front, NBFC-MFIs’ assets under management increased 38% in FY2023, driven by the sharp rise in the loan outstanding per borrower. NBFC-MFIs also reported a notable increase in the average number of accounts per unique borrower, which indicates that more entities are chasing the same set of borrowers. Thus, the industry needs to remain cautious on borrowers’ leverage.
Nevertheless, ICRA expects the growth to remain healthy at 24-26% in FY2024 and 23-25% in FY2025, albeit lower than the highs seen in FY2023.
Unsecured loans of NBFCs (personal loans, consumption loans, microfinance and unsecured SME loans) have witnessed a robust pace of growth in the recent past, supported by digitization via the India Stack and access to commensurate borrower-level data. Supported by these factors, co-lending and partnership-models based lending also played a key role as larger NBFCs and banks looked to grow their retail books and diversify by adding new borrowers and venturing into newer asset segments. While loan losses in this segment are expected to be elevated at 4-6% on a steady-state basis, this segment can generate adequate risk-adjusted returns at a commensurate scale. It is, however, crucial for the lenders to continue to maintain high underwriting thresholds for good quality growth going forward. ICRA expects this segment, with an outstanding AUM of Rs. 5.1 trillion as of March 2023, to expand by 26-28% in FY2024.
Overall non-banking financial companies (NBFCs) book is expected to grow at 13-15% in FY2024. Retail loans of NBFCs and the portfolio of housing finance companies (HFCs) are likely to grow by 18-20% and 12-14% respectively in FY2024, while the infrastructure loans would grow at 10-12%. The unsecured loan segment, comprising personal & consumption loans, small business loans and microfinance loans, which drove the expansion in FY2023, would continue to support growth in FY2024. A healthy demand of housing and pick-up in demand for non-home loan segment would support HFCs’ portfolio growth. Funding to the NBFC sector is expected to remain adequate to meet incremental requirement of Rs. 4.7-5.0 trillion, though, cost of funds would rise, thereby impacting the margins. The asset quality metrices and hence the credit costs would stabilise and lend support to the profitability. Overall, HFCs’ profitability shall witness some improvement while NBFCs would witness some moderation in FY2024.
Performance of ICRA-assigned ratings in H1 FY2024
--By Mr. K. Ravichandran,Mr. Jitin Makkar,Mr. Pratik Singhania
ICRA Webinar on The Indian Gas Utilities Sector: Tentative Return to N...
--By Mr. Sabysachi Majumdar,Mr. Prashant Vasisht,Mr. Varun Gogia
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Key Expectations in the Pre-Election Year
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Episode 2 Invite- "India Credit Outlook 2021"
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Episode 1 Invite- "India Credit Outlook 2021"
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ICRA Conference on Indian Auto Component Industry (Chennai), 14 February 2019
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