New Delhi: The medium-term outlook for bank credit growth looks promising, with increased personal and wholesale borrowing and a substantial reserve for loan provisioning. Ratings agency CareEdge estimates credit growth to be between 12% and 13% in 2022-23.
“Bank credit growth reached double digits, outpacing deposit growth at the end of FY22. The personal loan segment remained the largest segment, industrial sector credit drawdown improved after fell in FY21. Private Sector Banks (PVB) continued to outperform Public Sector Banks (PSB),” the rating agency said in a report. However, high inflation and rate hikes by the Reserve Bank of India could negatively impact credit growth.
The outlook for economic growth depends on several factors such as progress on the Russian-Ukrainian war front, the pace of monetary tightening by central banks globally, and the overall trajectory of global economic growth.
Consequently, GDP growth in 2022-23 will be impacted due to the widening trade deficit. Thus, given the uncertain economic environment, the rating agency expects India’s GDP to grow by 7-7.5% this year.
India has a relatively lower level of credit to GDP compared to other countries and to improve the same level, access to credit and the cost of credit must be addressed, he said.
“In India, the credit market is dominated by the banking sector as the bond market is still in the development stage. Therefore, the health of the banking sector is a priority area as it plays a key role in financial intermediation in the economy,” he added.
Bank credit growth has generally been closely linked to the pace of economic growth.
Credit growth was subdued before Covid, reflecting macro adjustments such as non-performing cleanup and risk aversion in lending, while Covid-19-induced lockdowns impacted credit growth in 2020 -21.
In 2021-2022, economic output grew by 8.7% and a similar trend was observed in credit growth, with gross bank credit growth registering a year-on-year increase to reach 9.6% in March 2022 due to a recovery. – higher business activity and comparatively lower interest rates, the report adds. (ANI)