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The outlook for bank credit growth is expected to be in the range of 7.5 per cent to 8.0 per cent for FY22 on the back of a low base effect, economic expansion, extended Emergency Credit (ECLGS) support, and retail credit push, according to CARE Ratings.
On a year-on-year (y-o-y) basis, non-food bank credit growth stood at 4.9 per cent in March 2021 as compared to 6.7 per cent in March 2020, per Reserve Bank of India data.
“The medium-term prospects look promising with diminished corporate stress and increased provisioning levels across banks. Retail loan segment is expected to do well as compared with industry and service segments,” the credit rating agency said in a report.
Q2 disbursements by some banks rise but overall loan growth muted
The agency assessed that y-o-y bank credit growth rate increased by 160 basis points (bps) to 6.7 per cent (fortnight ended September 24, 2021) from the year ago level of 5.1 per cent (fortnight ended September 25, 2020) and remained stable when compared with the previous fortnight.
“The y-o-y increase reflects the low base effect and the easing of lockdown restrictions across regions in India.
“In absolute terms, credit offtake increased by ₹ 6.8 lakh crore over the last twelve months and by ₹ 0.5 lakh crore as compared with the previous fortnight,” the report said.
Festive season credit pick up
The agency expects bank credit to improve further in the coming fortnights led by growth in the retail segment in the wake of onset of the festive season and rate cuts.
“This rise is expected to be supported by rate cuts by banks to push retail credit as several banks are offering loans at record low-interest rate ahead of the festive season,” the credit rating agency said in a report.
For example, in September 2021, banks like Kotak Mahindra Bank and Punjab & Sind Bank cut 1-year MCLR/ marginal cost of funds based lending rate (on m-o-m basis) by 5 basis points (bps) each, respectively.
Also, to attract borrowers several banks have slashed the home loan interest rates as a special offer in the festive season -- for example, State Bank of India, Bank of Baroda and Kotak Mahindra Bank have reduced their home loan rates by 45 bps, 25 bps, and 15 bps, respectively, the report said.
Similarly, foreign banks have also started to pitch for home loans at lower interest rates. HSBC India reduced home loan interest rates by 10 bps to 6.45 per cent.
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