According to Nuwama report, despite the risks of West Asia conflict and El Nino, recent regulatory measures like FCNR(B) and ECLGS will help in handling the growth, margins and asset quality of the Indian banking sector.
New Delhi [भारत]June 30 (ANI): Recent regulatory measures are expected to help the Indian banking sector deal with risks arising from the West Asia conflict and possible El Nino conditions, according to a report by Nuwama.
The report said that even though there is a need for caution due to macroeconomic uncertainties, regulatory support in the form of relaxation in foreign currency non-resident (bank) deposits, i.e. FCNR(B) and Emergency Credit Line Guarantee Scheme (ECLGS) will support growth, margins and asset quality even in the headwinds.
“While caution is needed on risks arising from the West Asia conflict and El Nino, the recent FCNR(B) and ECLGS measures will continue to support growth, margins and asset quality even in the face of headwinds,” the report said.
According to the report, the performance gap in the financial sector widened significantly in FY26. Public sector banks, small and medium-sized private banks and Tier II NBFCs outperformed, while large private sector banks and NBFCs lagged behind due to growth, margin and management concerns.
However, Nuwama believes the sector now stands at a crossroads where macro challenges posed by the West Asia conflict and El Niño risks are being balanced by supportive regulatory measures.
How will regulatory measures help?
The report highlighted that the relaxation in FCNR(B) could particularly benefit private sector banks which are facing pressure in mobilizing deposits. This measure is expected to support funding availability and strengthen the liability franchise of banks.
At the same time, the Emergency Credit Line Guarantee Scheme is expected to support borrowers and help control asset quality stress, which will support credit growth and earnings strength.
Why are private banks the choice of Nuvama?
Against this backdrop, Nuwama said he prefers banks over non-banking financial companies (NBFCs), and within banks, he favors private sector banks over public sector lenders.
The brokerage said private sector banks are better placed to take advantage of these regulatory tailwinds, while also being able to manage changes in the Expected Credit Loss (ECL) framework.
Major changes expected in FY27-FY29
According to the report, large private sector banks are well poised for a major turnaround during FY 27-29. The report expects these banks to deliver higher credit growth to the system, capture market share from public sector banks and maintain a healthy return on assets in the range of 1.8 per cent to 2.1 per cent.
Nuwama also said any future increase in interest rates could support margins of private banks as they have a higher share of loans linked to external benchmark lending rates.
The report further said that the impact of the upcoming ECL transition is likely to be limited for most large private sector banks as they have strong capital and provisioning buffers. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)