Bank credit growth continues its strong momentum in September

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NEW DELHI: Gross credit growth trended upwards and recorded a solid 16.4% year-on-year (YOY) increase in September, compared to a 6.7% increase a year ago , according to a report by Care Edge Ratings.

Over one year, non-food bank loans increased by 16.9% in September against 6.8% a year ago.

Care Edge Ratings, in a report, observed that in terms of annual performance, the service sector grew by 20% against 1.2% last year and took the pole position from the retail segment (19 .6% YoY).

The growth can be attributed to a weak base, strong growth in NBFCs (30.6%) and trade. NBFCs (non-bank financial corporations) and retail are expected to drive overall credit growth in FY23.

Industrial credit recorded robust growth of 12.6% year-on-year, compared to 1.7% a year ago, due to strong credit growth in the oil, coal, chemicals, nuclear fuels, rubber, plastics and telecommunications.

Incremental bank lending rose 6.2% in September versus a 0.1% year-on-year rise due to a low base and picking up economic activity. In addition, growth showed signs of recovery after moderate growth reported between September 19 and September 21 period, according to the report.

The retail segment (the largest segment with a share of 31.6%) saw robust growth of 19.6% year-on-year in September 2022 due to festive demand and an upturn in business commercial.

Other personal loans (24.4%), credit card receivables (27.2%) and durable consumer loans (60.7%), car loans (19.9%) were the main drivers of growth, driven by the start of the festival season and the recovery in activity. All sub-segments recorded double-digit growth in the retail segment for the period, the report said.

According to the brokerage report, total priority sector loans increased by 20.1% to reach Rs 55.3 million in September 2022, driven by credit growth in MSMEs (27.0%), energy renewables (77.5%) the weakest sections (24.5%). Credit for agriculture and related activities increased by 15.8% in September 2022. MSMEs account for the largest share within the priority (33.6%), followed by agriculture (29.0% ) and the weakest sections (23.8%).

“Credit growth is expected to remain elevated in the near term due to festive demand. After modest credit growth in recent years. The medium-term outlook looks promising with reduced business stress and a substantial buffer for provisions,” the report said.

“Despite an increase in the repo rate during S1FY23, credit drawdown remained robust in S1FY23 and is expected to be in the 12-13% range for FY23, as previously estimated by CareEdge. However, further increases in policy rates could dampen credit growth,” he added.

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