Bank credit growth up double digits amid inflationary pressures


Bombay : Bank lending has seen a turnaround with loan growth rising steadily in double digits over the past three fortnights. Credit growth increased by 11.7% for the fortnight ended May 6 compared to a year ago, and increased by 1.12%, or 1.34 trillion, sequentially to 12.04 trillion.

Much of this growth was driven by a weak base, growth in retail loans and higher working capital requirements due to high inflation.

The growth of retail trade has accelerated due to the improvement in the labor market and increased economic activities.

Retail segment credit outstanding increased 12.4% year-on-year in March, driven by growth in personal, home and auto loans, mainly driven by low interest rates and discounts higher.

Outstanding loans in the industry segment recorded growth of 7.1% year-on-year in March 2022 compared to a decline of 0.4% in the corresponding month of 2021, mainly due to the robust growth of micro and small (21, 5%) and medium-sized enterprises. (71.4%) corporate segment, facilitated by the Emergency Credit Line Guarantee Scheme (ECLGS).

Credit for the services sector also increased by 8.9% year-on-year in March, compared to 3% in March 2021.

Fiscal 22 ended with gradual credit growth 10.5 trillion, up 1.8 times from the growth of 5.8 trillion in FY21, much of it in November 2021 and March.

According to Crisil, healthy economic growth and government fiscal support should lift bank credit growth by 200-300 basis points to 11-12% this fiscal year.

“While the outlook for credit growth also looks positive for FY23, current inflation trends could play a spoilsport role as rate hikes could have a dampening effect on demand for credit in the at the same time the economy is recovering A study by the Reserve Bank of India (RBI) indicates that an increase (decrease) in the policy rate of 100 basis points leads to a decrease (increase) in credit of 1.95% with a six-quarter lag,” says an SBI research report from May 2 Public sector banks saw overall loan growth in fiscal 2022 improve to 8.8%, the highest since 2013 2014. According to SBI calculations, the weighted contribution of PSOs to overall credit growth reached 43%, much higher than 27% in FY2019. The share of private sector banks in growth of credit fell from 65% to 47% for the year ended March 31, 2022.

“FY22 was arguably a pivotal year for PSOs: after a long asset quality cycle, their balance sheets are healthy enough to start growing again. Overall, this will likely lead to a sustained improvement in system loan growth to trend levels of 12-13% (from 10% currently). For private banks, this could mark the end of easy market share gains on both sides of the balance sheet,” Bank of America Securities said in a May 24 report.

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