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The banking system could see double-digit growth rate in credit in FY22 as the economy seems to be in revival mode, according to Rajkiran Rai G, Union Bank of India (UBI) MD and CEO.
Things are slowly returning to normalcy on the credit front, opined Rai, who is also the Chairman of Indian Banks’ Association (IBA).
Referring to the opinion of some experts that credit demand is not at the same level as it was in October and November, Rai said: “So, it is too early to declare victory. But things are okay.”
“If the economy comes back to normalcy – suppose we are able to see slightly positive growth in Q3 (October-December) and better growth in Q4 (January-March) – there will be better capacity utilisation.”
The Union Bank chief felt that investment demand will pick up. “But whether it will take three months, six months, nine months, we are not sure.
“But then, I strongly feelcredit growth in FY22 should hit double-digits in percentage terms,” he said.
Rai expects the banking system’s credit pick up in FY22 to be higher vis-a-vis expected credit growth of 5-6 per cent in FY21. Plus, due to base effect, the system may record double-digit credit growth.
This credit growth will happen due to capacity expansion, working capital and term loan utilisation, some upgradation in technology, infrastructure projects in public-private partnership, and HAM (hybrid annuity model) for road projects, among others.
Citing the example of steel, Rai said price of the metal is going up because the demand is quite high. “Now, if the margins sustain like this, we will see capacity expansion…credit demand will pick up,” he added.
In its latest report on ‘Report on Trend and Progress of Banking in India’, the Reserve Bank of India (RBI) observed that during the current financial year so far, the loan growth deceleration (which started in 2019-20, reflecting both risk aversion and tepid demand) was accentuated by the -19 pandemic
Rai remarked that banks have been a bit liberal with working capital assessment in the backdrop of the pandemic.
“So, as things return to normalcy, we, too, have to restore the original way of assessment.
“In this kind of environment where interest rates are low, lot of leverage gets built. So, we have to be careful that we don’t build a bubble,”he said.
Referring to the government’s outlay of ₹100-lakh crore for infrastructure projects over five years beginning FY20, Rai believes this will lead to a cycle of growth.
“Government spending will really help the economy. The Reserve Bank of India has done everything possible from its side,” he said.
Deposit growth
The UBI chief observed that deposit growth in FY22, too, will be in double digits. “Deposits were never a constraint. We mobilise deposits only when we have lending opportunities. So, what we have to do is focus more on lending,” he emphasised.
As per RBI data, deposits of all scheduled banks were up 11.12 per cent y-o-y as on December 18, 2020.
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