In the fiscal year ending March 2022, bank advances likely increased by 9-10%.
“Sound economic growth and government fiscal support are expected to lift bank credit growth by 200-300 basis points to 11-12% this fiscal year,” Crisil Ratings said in the report.
The rise in credit growth forecasts is also supported by improving resilience in the banking system, he added.
Its senior director and deputy ratings director, Krishnan Sitaraman, said the biggest difference expected for this fiscal year is the rise in corporate credit growth trajectory, which is expected to double to 8-9%.
“The Union budget pegs public capital expenditure at around Rs 7.5 lakh crore, a significant increase from last fiscal year, with particular emphasis on public infrastructure. The downstream impact of this on public key sectors, along with the announced Production Linked Incentives (PLI) program for 13 key sectors, will be the drivers,” he said.
Sectors expected to see the maximum growth, given their industry dynamics, include metals and metal products, chemicals, engineering and construction, he noted.
The report says bank advances to micro, small and medium-sized enterprises (MSMEs) could increase by 12-14% this fiscal year, thanks to the multiplier effect of some recovery in investment spending.
This segment had experienced higher credit growth in recent quarters due to the Emergency Credit Line Guarantee 2 (ECLGS 2) program.
Home loans, which make up the bulk of retail lending, will be a major driver of credit, with home purchases expected to continue at a healthy pace this fiscal year, the agency said.
At the same time, unsecured lending will also see some growth as lenders continue to find this segment attractive on a risk-adjusted yield basis.
“Overall, retail book growth will hold steady at 14-15% this fiscal year,” he said.
Agricultural credit growth, which is expected to increase by 9-10% in fiscal 2022, will remain stable in the current fiscal year pending a normal monsoon.
Crisil Ratings director Sri Narayanan said the country’s banking sector is structurally sounder today and well placed to fund faster credit growth.
“Capital buffers are healthier, with all public sector banks having a buffer of at least 100 basis points against the regulatory requirement, while private banks continue to be strong on this point. Second, profitability metrics are at their highest level in 9 years,” he said.
Narayanan said pressures on asset quality were easing, with gross NPAs at the sector level likely declining by around 500 basis points from their 2018 peak, due to the improvement in the corporate book.
The report, however, indicates that a further increase in COVID-19 cases, a protracted war between Russia and Ukraine and a higher than expected slowdown in private consumption are the three things to watch closely.