Budget 2022: With banks' financial health improving, ICRA expects no more capital infusion

By Anish Kumar | First Published Jan 13, 2022, 8:38 PM IST

Credit-rating agency ICRA does not expect any capital to be budgeted by the government in the upcoming Budget for public sector banks despite the enhanced regulatory capital requirements.

For the first time in a decade, the credit-rating agency ICRA does not expect any capital to be budgeted by the government in the upcoming Budget for public sector banks despite the enhanced regulatory capital requirements. Since the last six years, the government has infused a capital of Rs 3.36 trillion that helped the public banks to significantly clean up their balance sheets with their net non-performing advances reducing to 2.8 per cent as of September 30, 2021, from the peak of 8 per cent as on March 31, 2018.

The ICRA believes that most public banks would incrementally stay profitable and garner growth capital needs internally, which implied that the public banks have a healthy earnings outlook. Recoveries from legacy NPAs can become operational and that could aid the bottom lines of the banking system in the coming years.

As for Non-Banking Financial Companies, they account for 25 per cent of the credit exposure in the country. According to the ICRA, the Budget may carry on with some liquidity and guarantee schemes to ensure near-term funding availability for (non-infra) NBFCs. Finance Minister Nirmala Sitharaman's Budget is also expected to guide the medium-term support framework for the sector.

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This, according to the credit rating agency, will instil investor confidence and act as a catalyst for sustainable revival. It is further expected that the spending on infrastructure would continue which would lead to an increase in the demand for infra-focused NBFCs. Tax breaks for homebuyers and builders in the housing sector, especially affordable housing, and additional incentives for micro, small and medium enterprises or MSMEs would benefit the sector, which is likely to face asset quality headwinds, ICRA noted.

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