Bank credit growth may have bottomed out at 6%: Crisil

Credit growth of commercial banks may have bottomed out, which is expected to be 6% this financial year and in 2020-21, the growth could improve to 8-9%, rating agency Crisil said.

“The prolonged slowdown in bank lending may be bottoming out this fiscal, with gross credit offtake set to rise 8-9% on-year in fiscal 2021, a good 200-300 basis points (bps) over the likely growth of around 6% this fiscal,” the rating agency said.

According to data published by the RBI, year-on-year credit growth till January 31 was 7.1% compared with the 14.5% during the same period of the previous financial year.

Crisil said a gradual pick-up in economic activity, continuing demand for retail loans and strong growth in lending by private sector banks should drive the uptick.

Policy measures

“Recent policy moves announced in the Union Budget, and by the Reserve Bank of India are also expected to provide spur,” it said.

After cutting interest rate by 135 bps between February and October 2019 to boost loan demand, the RBI has taken measures such as infusing longer-term funds into banks at repo rate that is lower than the prevailing market — a move to bring down interest rates further.

Crisil said some growth momentum is expected in the January-March quarter, after subdued three quarters, due to traditional fiscal year-ending growth. Also, the RBI’s move to exempt banks from cash reserve ratio (CRR) requirement for incremental credit to certain sectors for up to five years, will also support lending.

“Incremental net domestic credit this fiscal up to December 2019 is just a fifth of what it was a year ago,” the rating agency said, adding lending to the retail segment and non-banking financial companies (NBFCs) showed good growth, while credit to corporates and micro, small, and medium enterprises (MSME) declined.

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Printable version | May 18, 2021 11:27:51 AM |

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