Bank credit growth sees double digit rise amid inflationary pressures
PremiumCredit growth rose 11.7% for the fortnight ended 6 May from year-ago and was up 1.12%, or ₹1.34 tn, sequentially
MUMBAI : Bank credit has seen a turnaround with loan growth rising steadily in double digits for the past three fortnights. Credit growth rose 11.7% for the fortnight ended 6 May from the year-ago, and was up 1.12%, or by ₹1.34 trillion, sequentially to ₹12.04 trillion.
Much of this growth was driven by a low base, growth in retail loans, and higher working capital requirements owing to elevated inflation.
Retail growth has picked up due to an improving job market and increase in economic activities.
Credit outstanding of the retail segment rose 12.4% from the year ago in March on the back of personal, housing and vehicle loans growth, primarily due to low interest rates and higher discounts.
Credit outstanding of the industry segment registered 7.1% year-on-year growth in March 2022 compared to a fall of 0.4% in the corresponding month of 2021, primarily on account of robust growth in the micro and small (21.5%), and medium (71.4%) enterprises segment, facilitated by the Emergency Credit Line Guarantee Scheme (ECLGS).
Credit for the services sector also rose by 8.9% from the year ago in March, from 3% in March 2021.
FY22 ended with an incremental credit growth at ₹10.5 trillion, up 1.8 times compared to the growth of ₹5.8 trillion in FY21, much of it during November 2021 and March.
According to Crisil, healthy economic growth and budgetary support from the government should lift bank credit growth by 200-300 basis points to 11-12% this fiscal year.
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“Even as the outlook of credit growth looks positive in FY23 also, the current inflation trends could play a spoilsport as rate hikes could have a dampening impact on credit demand just as the economy has been turning round the corner. A Reserve Bank of India (RBI) study indicates that an increase (decrease) in policy rate by 100 basis points causes the credit to decline (increase) by 1.95% with a lag of six quarters," said an SBI research report of 2 May. Public sector banks saw aggregate loan growth in fiscal year 2022 improve to 8.8% —the highest since 2013-14. According to SBI’s calculations, the weighted contribution of PSBs in overall credit growth was as much as 43%, far higher compared to 27% in FY19. The share of private sector banks in credit growth declined from 65% to 47% for the year ended 31 March 2022.
“FY22 was arguably a watershed year for PSBs—after a long asset quality cycle, their balance sheets are healthy enough to start growing again. Overall, this will likely drive system loan growth to improve sustainably to trend 12-13% levels (from 10% now). For private banks, this could mark the end of easy market share gains on both sides of the balance sheet," said Bank of America Securities in a report on 24 May.