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Axis Bank expects the banking system’s credit to grow by 9 per cent in FY23, about 50 basis point higher than its FY22 projection of 8.5 per cent.
The private sector bank attributed this to working capital demand picking up and improving outlook for corporate credit even as borrowers are seen gravitating towards banks from non-banks in a rising interest rate scenario.
Saugata Bhattacharya, EVP – Business and Economic Research and Chief Economist, Axis Bank, noted that higher commodity prices could lead to increased demand for working capital. He observed that if interest rates harden, there could be a shift in credit demand from non-banks to banks, the reason being that banks have pricing advantage due to access to low-cost deposits.
Besides continued demand for retail credit, the outlook for corporate credit is also improving.
Lower GDP projection
The aforementioned credit growth projection comes amid the bank’s business and economic research team estimating a GDP growth of 7.8 per cent in FY23, 110 basis points lower than the FY22 GDP growth forecast of 8.9 per cent.
In view of rising crude oil and other commodity prices (metals, fertilisers, cereals, edible oils), Axis Bank has pegged the average consumer price index (CPI) at 5.6 per cent for FY23 against 5.4 per cent projection for FY22.
For FY23, RBI had projected real GDP growth at 7.8 per cent and CPI inflation at 4.5 per cent in its February monetary policy review. While anticipating a status quo in the upcoming monetary policy review, Bhattacharya said the repo rate could be increased by up to 50 basis points in FY23.
Cascading impact
Bhattacharya expects a total impact of 79 basis points on inflation in case of 10 per cent rise in pump prices of petrol and diesel, 10 per cent rise in kerosene and LPG, and second round impact (assuming 50 per cent pass through).
The first order impact of 10 per cent increase in crude prices is 20 basis points. The ability of companies to pass on higher input costs will determine the hit to incomes and consumption.
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