Domestic rating agency Icra on Monday upped its banking sector outlook to ‘positive’ on healthy asset growth, improving asset quality and stronger capital buffers.

The agency expects asset quality to improve to a decadal best of 4 per cent from a gross non-performing assets (NPAs) perspective by the end of FY2024.

The banking system’s credit growth will slow down to 11-11.6 per cent in FY2024, after a very healthy growth of 15.2-16.1 per cent expected in FY2023, the rating agency said.

A bulk of the credit growth story will be led by stateowned lenders which are in far better shape now having recognised and provided for loan losses and also after some capital infusions, it said, adding that the market share gains for private sector lenders will slow down.

Public sector lenders will witness a credit growth of 13.4-14.1 per cent in FY2023 and 9.5-10.1 per cent in FY2024, the agency estimated, adding that the same for private sector banks will be 14.5- 15.5 per cent and 12.6-13.5 per cent.

From an asset quality perspective, the system’s GNPAs (gross non-performing assets) will come down to 4 per cent and net NPAs will be under 1 per cent, the agency’s vice-president Aashay Choksey told reporters.

The system’s GNPAs were at 6 per cent in FY2022, while the net NPAs were at 1.7 per cent.