Credit growth is likely to be brisk for MSMEs in FY2023-24 provided inflation remains benign and cost of credit is low, said the Economic Survey 2022-23 presented in Parliament on Tuesday.

The Micro, Small and Medium Enterprises sector witnessed a credit growth of about 31 per cent in January-November 2022.

"If inflation declines in FY24 and if real cost of credit does not rise then credit growth is likely to be brisk in FY24," the Survey said.

Talking about the banking sector in India, the Survey said it has also responded in equal measure to the demand for credit as the year on year growth in credit since the January-March quarter of 2022 has moved into double digits and is rising across most sectors.

Turnaround in PSBs

The finances of public sector banks (PSBs) have seen a significant turnaround with profit being booked at regular intervals and their non-performing assets being fast-tracked for quicker resolution/liquidation by the Insolvency and Bankruptcy Board of India (IBBI), it said.

At the same time, it said, the government has been providing adequate Budgetary support for keeping the PSBs well capitalised ensuring that their capital risk-weighted adjusted ratio (CRAR) remains comfortably above the threshold levels of adequacy.

Nonetheless, financial strength has helped banks make up for lower debt financing provided by corporate bonds and higher interest/hedging costs on ECBs so far in FY'23, it said, adding, rising yields on corporate bonds and higher interest/ hedging costs on ECBs have made these instruments less attractive than the previous year.

The Survey said growth is expected to be brisk in FY24 as a vigorous credit disbursal and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors.