Credit drawdown growth at highest level in 9 years as retail boosts demand

Bank credit rose 16.2% in the fortnight ended September 9, the highest in around nine years, helped by the post-Covid recovery in economic activity, increased demand for working capital , the increase in discretionary spending and a low base effect.

Outstanding bank credit stood at Rs 125.5 lakh crore during the reporting fortnight, Rs 17.5 lakh crore higher than Rs 108.02 lakh crore during the fortnight ended September 10, 2021, according to the latest data released by the Reserve Bank of India. On a sequential basis, credit growth was 0.7% over the fortnight ending Aug. 26, the data showed.

“Credit Drawdown saw robust growth of 16.2% year-over-year, increasing significantly by around 948 basis points (bps), for the fortnight ending September 9, 2022. growth is almost the highest in the last 9 years (16.3 percent credit growth: October 18, 2013),” said Saurabh Bhalerao, Associate Director of BFSI Research, Care Ratings. A basis point is one hundredth of a percentage point

This surge in loan demand was spurred by steady retail credit and improving wholesale credit, which is expected to continue through the rest of the fiscal year, experts said. “There is a recovery in the economy and we are seeing normality returning to all sectors post-Covid. Discretionary spending in the retail segment, which was postponed, is now clustered. Business working capital demand has started,” said Suresh Khatanhar, Deputy Managing Director, IDBI Bank.

Banks are also seeing increased demand for funds from retail-focused non-bank financial companies (NBFCs).

Credit growth has been on an upward trajectory since the second half of FY22 and has been in double digits since April 2022, despite a 140 basis point hike in the repo rate – the rate at which the RBI lends money to banks to meet their needs. short-term financing needs — since May of this year.

Retail lending picked up on underlying demand, with outstanding credit growing at a robust 18.8% year-on-year in July 2022, driven by the miniaturization of credit, housing and business loans. vehicles, Bhalerao said.

Bankers said that with bond yields tightening, companies are now turning to capital market banks for their financing needs.

“Previously, when interest rates were lower, companies preferred the bond market route to raise funds. However, with bond yields reversing, they are now turning to banks,” Khatanhar said.

The 10-year bond yield rose to 7.35% on September 26 from around 7.24% on September 2.

Experts believe that with the start of the festival season, bank credit growth should remain strong.

An improvement in the overall quality of banks’ assets and a reduction in systemic risk aversion should also contribute to buoyant bank credit growth, said Suman Chowdhury, director of analysis at Acuity Ratings & Research.

Bankers, however, believe that inflation remains a major risk to credit growth.

“Even though RBI has managed domestic inflation to some extent, global inflation has remained elevated despite hawkish policies. This may lead to demand issues globally, leading to second-order effects in India,” Bhalerao said.

He expects credit growth to be between 12% and 13% in FY23, down from 8.59% in the prior year.