The estimate factors an expected 7% increase in gross domestic product (GDP) this fiscal in addition to factors like government’s infrastructure push, higher working capital demand in a high-inflation environment, and some substitution of debt capital market borrowings.
After a significant clean-up and strengthening of balance sheets, supported by substantial equity infusion, public sector banks are eyeing higher growth. As a result, their credit growth is seen at 12 percent over this fiscal and next, though lower than 17 percent expected for private banks.
In terms of sectoral allocation, this fiscal is likely to be driven more by the retail and micro, small and medium enterprises (MSME) segments. But corporate credit could be a larger contributor next fiscal.
“Corporate credit (45% of overall credit) may grow at a 2-year compound annual growth rate (CAGR) of 10-12% up to March 2024, after a mere 3% between fiscals 2019 and 2022″ said Krishnan Sitaraman, senior director and deputy chief ratings officer, Crisil Ratings. “This year, additional working capital requirements due to high inflation and move from the bond markets to bank loans, given the interest rate movements, are driving growth, though off a low base. On the other hand, next fiscal should see a revival in private sector capex, which then will become the key driver for higher corporate credit growth.”
Retail credit (26% of total advances) is expected to grow the fastest at 17-19%. Demand for home loans, the largest sub-segment, is expected to stay robust despite rising interest rates and real estate prices, as affordability remains better than in the past.
Unsecured retail loans, which were muted during the pandemic, have started to grow again as this remains a lucrative segment for banks. ” However, the impact of a continued rise in interest rates on retail credit demand needs to be seen,” Crisil said.
The MSME segment is expected to grow at 16-18% over the current and the next fiscal given their role in the Atmanirbhar Bharat initiative, and the impact of schemes such as the Productivity Linked Incentive scheme, demand is expected to sustain. Agriculture credit growth is expected to hover around 10%, supported by reasonably normal monsoon and harvest.
But the pace of deposit growth needs to be monitored. “What will be a key monitorable in this high credit growth environment is whether deposit growth can keep pace” said Subha Sri Narayanan, director, Crisil Ratings. ” The past few months have seen a trend reversal with credit growth running ahead of deposit growth. Also, surplus liquidity in the banking system is normalising. Therefore, banks may now have to raise deposit rates at a faster pace, which we are already seeing”
For all the latest world News Click Here
