Credit demand which has been picking up steadily is likely to improve further with investments picking up and an increase in capacity utilisation for corporates. While retail credit has been picking up, corporate credit has been lower due to low capacity utilisation, Rajnish Kumar, ex-chairman of State Bank of India said.

There has been an improvement in the overall asset quality of banking system and non-performing assets (NPA) are coming down steadily.

A recent report by Crisil Ratings said that the gross NPAs of banks, which is a key indicator of asset quality, is expected to improve 90 basis points to close at 5 per cent this fiscal on-year and another 100 basis points to a decadal low of around 4 per cent by March 31, 2024, riding on post-pandemic economic recovery and higher credit growth. The biggest improvement will be in the corporate segment, where gross NPAs is seen falling below 2 per cent next fiscal from a peak of around 16 per cent as on March 31, 2018, the report said.

Improved asset quality

According to Kumar, the trend of lower NPAs is likely to sustain forward movement with asset quality witnessing a steady improvement.

“Retail sector asset quality was more or less always good, the problem was with the corporate NPAs. If they (corporates) continue to adopt good risk management practices then NPAsshould be well managed,” he told newspersons on the sidelines of the 15th edition of banking colloquium organised by the Confederation of Indian Industry (CII) here on Friday.

Rural Talking about rural credit demand, Prashant Kumar, Managing Director and CEO of Yes Bank, said that rural demand was still lower as compared withpre pandemic levels. However, demand for credit has been good from mid-market and premium segments. Yes Bank is looking to tie up with NBFCs and fintech companies for co-lending to step up lending to affordable housing and MSME sectors, he said.

Speaking at the banking colloquium virtually, C Sreenivasulu Setty, Managing Director–International Global Market, State Bank of India, said that the Reserve Bank of India is expected to raise its policy repo rate by upto 50 basis points at the monetary policy committee (MPC) meeting next week.

‘Unusual situation’

The MPC at its meeting on August 5 decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.40 per cent on the basis of an assessment of the evolving macroeconomic situation.

“While volatility is not new, I think this is a very unusual situation that we are facing... How we are going to manage things where the Fed rate is expected to reach around 5 per cent. There is no compelling reason for RBI, given the specific ecosystem in India, to keep on increasing the rate. This is the dichotomy bankers face,” he said.