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Private banks are optimistic of a pick-up in credit in FY23, after muted growth in the last two financial years. Q1FY23 saw most private banks reporting an increase in demand across both wholesale and retail loans.
While elevated inflationary pressures and macro-economic concerns continue to pose a challenge for India’s GDP growth, bankers are optimistic that business will continue to grow as the economy recovers and consumer sentiment improves.
Economic slowdown
Even in this period, India still remains one of the fastest growing large economies in the world, said ICICI Bank Executive Director Sandeep Batra on Saturday. “We are still growing, so let’s not look at western benchmarks at this point in time,” he said addressing concerns of an economic slowdown.
Credit growth was hit in the last two financial years, as the country faced multiple Covid-19 waves, which disrupted lives, livelihood and business activity. In Q1FY23, most private banks have reported credit growth upwards of 12-14 per cent, with large banks such as ICICI Bank and Kotak Bank posting loan growth of 21 per cent and 29 per cent, respectively.
As they look ahead to the next three quarters, these banks have guided for a pick-up in loans to the large and mid-corporate segment, where demand was till now largely contained to working capital loans. In Q1FY23, incremental demand from corporates was also driven by their shift away from capital markets amid rising rates.
Despite pockets and instances of higher stress, growth is also seen strong in credit cards and retail loans--wherein mortgage, vehicle and personal loans are expected to be lead growth. Most banks also expect lending to MSMEs to pick-up in the second half of the financial year, as the sector emerges from the period of pandemic-related stress.
Moreover, an improvement in asset quality for most large banks has lowered provisioning requirements and credit costs, freeing up capital to deploy in high growth segments.
The optimism seems to be have been taken well by the market, reflected in the surge in shares of private banks post their Q1FY23 results. Over the last week--when most private banks declared their Q1 results-- the Nifty Bank Index rose 5.9 per cent whereas the Nifty Private Bank Index was up 6.6 per cent as of close Friday.
Even then, uncertainty prevails for fear of lower consumption and rising interest rates owing to inflationary concerns’, as higher lending rates could hit banks margins as well as demand for credit. Further, rising rates are seen leading to higher cost of funds for banks, and muted to negative growth in their treasury book.
Analysts and industry experts, however, remain confident that in spite of these challenges, credit growth will be on the uptrend in the coming quarters.
The incremental off-take since March 2022 has been positive for banks across all the reporting fortnights in Q1FY23, rating agency ICRA said in a recent report. “While rate tightening and the consequent slowdown may dampen demand for the credit off-take for banks in the later half of the year, credit growth is likely to remain better than over 9.7 per cent seen for FY22,” it said.
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