Credit Demand Is Expected To Double To 9-10% In FY22, Says Report

With timely government and regulatory measures that helped the economy to recover faster than expected, bank credit is seen growing 400-500 bps to 9-10 per cent in the next financial year, according to a report from Crisil.

In the current fiscal, bank credit is expected to rise 4-5 per cent despite the sharpest contraction in the economy since Independence.

As per the report, the economy is likely to grow at 11 per cent in FY22.

While bank credit growth had contracted 0.8 per cent in the first half of this fiscal, it recovered sharply in the third quarter by growing 3 per cent sequentially. In the fourth quarter, too, it should clock 3 per cent sequential growth, Krishnan Sitaraman, a senior director at Crisil said on Monday.

In June 2020, Crisil had pegged bank credit growth to be at 0-1 per cent this fiscal.

The government measures, including the Rs 3 lakh crore emergency credit line guarantee scheme (ECLGS), have been supportive, he added.

In the first half of this fiscal, the pandemic forced borrowers and lenders to tread cautiously, leading to a contraction in credit pick up. But a faster-than-expected uptick in economic activity since the relaxation of lockdowns, and pent-up and festive season demand helped thereafter.

In absolute terms, net credit rose to Rs 2.3 lakh crore in the first nine months of FY21, of which disbursements under ECLGS were Rs 1.6 lakh crore in this period.

Banks also deployed Rs 1.4 lakh crore via targeted long-term repo operation and partial credit guarantee scheme, serving as credit substitutes.

Growth in corporate credit, which is 49 per cent of overall bank credit, is expected to contract this fiscal as companies have put Capex on the backburner but will change next fiscal when corporate credit is expected to grow 5-6 per cent on a likely revival in demand.

But the share of corporate loans in the overall credit pie will continue to shrink with faster growth of other segments.

Retail lending is likely to slow down to 9-10 per cent this fiscal before returning to the mid-teens growth of the past couple of years.

Banks are expected to benefit from the lower competition as non-banks, grappling with multiple challenges, see tepid growth. With deposit growth outstripping credit growth so far, banks would use the surplus liquidity to wrench credit market share away from some of the largest catchments of non-banks such as mortgages and new vehicle finance. Even this fiscal, more than half of the incremental retail credit growth till date has been from mortgages," Subha Narayanan, a director at the agency, said.

Overall growth in credit to MSMEs is likely to be at 9-10 per cent this fiscal and 8-9 per cent in the next financial year, as the ECLGS may not be available next fiscal.

Agriculture credit has also contributed, with rural India seeing a lower impact of the pandemic and a good harvest. Credit growth here is foreseen at 6-7 per cent in this fiscal and the next.

A sharp economic recovery, along with a pick-up in private investment and Capex demand may lead to buoyant credit growth next fiscal.

However, sub-normal monsoons and another surge in the pandemic leading to localised or partial lockdowns pose downside risks