Growth in credit score offtake at 9-yr excessive, with retail driving demand

Bank credit score grew at 16.2 per cent within the fortnight ended September 9, the very best in about 9 years, aided by revival within the financial exercise post-Covid, elevated working capital demand, rising discretionary spending and low-base impact.

The excellent financial institution credit score stood at Rs 125.5 lakh crore in the course of the reporting fortnight, Rs 17.5 lakh crore greater than the Rs 108.02 lakh crore in the course of the fortnight ended September 10, 2021, as per the newest information launched by the Reserve Bank of India. On a sequential foundation, the expansion in credit score was 0.7 per cent in comparison with the fortnight ended August 26, the information confirmed.

“Credit offtake saw a 16.2 per cent year-on-year robust growth, expanding by a significant around 948 basis points (bps), for the fortnight ended September 9, 2022. The growth is nearly the highest in the last 9 years (16.3 per cent credit growth: October 18, 2013),” mentioned Saurabh Bhalerao, affiliate director—BFSI analysis, Care Ratings. A foundation level is one hundredth of 1 share level

This rise in demand for loans has been pushed by sustained retail and bettering wholesale credit score, which is more likely to proceed the remainder of the fiscal, consultants mentioned. “There is a pick-up in the economy and we are seeing normalcy coming back in all the sectors post-Covid. The discretionary spending in the retail segment, which were being postponed, are now being bunched up. The demand for working capital demand from corporates has started,” mentioned Suresh Khatanhar, deputy MD, IDBI Bank.

Banks are additionally seeing an elevated demand for funds from retail-focused non-banking monetary corporations (NBFCs).

The progress in credit score has been on an upward trajectory for the reason that latter half of FY22 and has been in double digits since April 2022, regardless of a 140-basis level hike in repo charge — the speed at which the RBI lends cash to banks to satisfy their brief time period funding wants — since May this yr.

Retail credit score loans have picked up as a consequence of underlying demand, as credit score excellent noticed a sturdy progress at 18.8 per cent year-on-year in July 2022, pushed by the miniaturisation of credit score, housing, and automobile loans, mentioned Bhalerao.

Bankers mentioned that with hardening of bond yields, corporates are actually shifting to banks from the capital marketplace for their funding necessities.

“Earlier, when the interest rates were lower, corporates preferred the bond market route to raise funds. However, with the reversal in bond yields, they are now shifting to banks,” mentioned Khatanhar.

The 10-year bond yield has elevated to 7.35 per cent as on September 26, from round 7.24 per cent on September 2.

Experts imagine that with the onset of the pageant season, financial institution credit score progress is anticipated to stay robust.

An enchancment in banks’ general asset high quality and a discount within the systemic threat aversion can be anticipated to assist the buoyancy in financial institution credit score progress, mentioned Suman Chowdhury, chief analytical officer, Acuité Ratings & Research.

Bankers, nonetheless, really feel that inflation stays a key threat for credit score progress.

“Even as RBI has managed domestic inflation to some extent, global inflation has remained high despite hawkish policies. This may lead to demand issues globally causing second-order effects in India,” mentioned Bhalerao.

He expects credit score progress to be within the vary of 12-13 per cent in FY23, in comparison with 8.59 per cent seen within the earlier fiscal.