CRISIL expects bank credit to grow by up to one per cent in fiscal year 2020-21

MUMBAI: The banking system's credit growth will plummet to a multi-decadal low of up to 1 per cent in FY21, domestic credit ratings agency CRISIL said on Thursday.

For non-banking finance companies (NBFCs), the shock will be more pronounced and assets under management (AUM) may decline by up to 3 per cent during the fiscal, impacted majorly by wholesale segment, it said.

It can be noted that non-food credit growth was at 5.5 per cent as of August 28 as compared to the year-ago period. Lenders have been undertaking targeted measures to increase the growth and are pinning hopes on festive season for growth to go up.

Generally, bank credit growth is said to be directly linked to the economic activity, which is set to contract by over 10 per cent in FY21. "Given the grim economic outlook, the banking system's credit growth will come at between 0-1 per cent in FY21. This will be a multi-decade low," the agency's senior director Somasekhar Vemuri told reporters on a call.

He said that for NBFCs, credit growth will be in negative zone and assets under management will decline by 1-3 per cent in the fiscal year. He added that from an asset quality perspective as well, NBFCs will be more impacted than the banks.

The agency said that NBFCs are likely to witness a 0.50 to 2.50 per cent surge in delinquencies this fiscal, driven largely by the small business and wholesale segments. In case of banks, the restructuring scheme will help limit the quantum of loans recognised as non-performing assets (NPAs), the agency said without giving any estimate.

It had earlier estimated the banking industry's NPAs to surge to 11.5 per cent of the overall assets in FY21. NBFCs are also likely to benefit from the loan recast scheme.

Vemuri said that given the salary cuts and job losses, the retail lending segment, which has so far been immune to high levels of stress, will also see a rise in NPAs. The proportion of salaried people availing home loans will also be limited.

He said that the home and gold loan segments will see the lowest NPAs for NBFCs, while the stress will be highest in vehicle finance and small businesses segment.

The agency also shared collection data for NBFCs for April-August, which showed collections for wholesale segment at under 40 per cent, while the same for home loans and gold loans was highest at around 90 per cent each.