Banking sector may show revival in FY20

Indian banking industry which is exposed to the highest level of NPA issues around the world may see some revival in the near future. NPA is something that can be classified as loans or advances that have defaulted on scheduled repayment of principal or interest.

The issue of Non-Performing Assets (NPAs) in the Indian banking sector has been a major hurdle for economic growth. On account of mounting NPAs, the bank's overall capacity to lend has been severely affected. Though, since the last few quarters asset quality seems to have improved. Higher recoveries and control on fresh bad loans are considered as the key reasons for the improvement. NPAs in the Indian banking industry stood at 9.3 per cent at the end of FY19 which is down from 11.5 in FY18.

Further, slippages have also seen declining trend since the third quarter of 2018-19 fiscal and the rate of accretion of fresh NPAs came to as low as 3.7 per cent in FY19 as compared with 7.4 per cent in the previous fiscal. With persistent efforts by governing authorities and stricter lending norms, we can expect to see a drop to around 3.2 per cent in FY20.

On the back of positive development in the sector, banking index, Nifty Bank gave more than 12 per cent returns in FY18, while it ended FY19 as high as 25 per cent.