“Credit offtake is expected to pick up as the economy is poised to stage a smart recovery in 2021-22 on the back of decline in COVID infections and swift rollout of the vaccination programme in addition to a number of measures announced by the government in the Union Budget 2021-22 to accelerate the growth momentum” said study by the Reserve Bank of India published in its latest monthly bulletin.
The market participants too are factoring a revival of credit demand in FY’21-22. “Bank credit is seen growing 400-500 basis points (bps- one bps is 0.01 per cent)) higher at 9-10% next fiscal as the Indian economy recovers, supported by budgetary stimulants and measures announced by the RBI” said ratings firm
. Overall growth in non-food credit as November’20 5.7 per cent in January 2021 as compared to 8.5 per cent in January 2020, according to the RBI data.
Credit growth, which had already started slowing in 2019-20, decelerated in 2020-21 in the wake of the pandemic. However, with the gradual resumption of economic activity, credit to agriculture and services sectors has registered accelerated growth in the recent period. Even within industry, credit growth to medium industries has accelerated, indicative of positive impact of several measures taken by the government and the Reserve Bank, the study noted.
However, contraction in credit to large industries and infrastructure remains a cause of concern for the central bank. The Reserve Bank has taken several measures to facilitate credit flow to various sectors of the economy, especially to the MSME and NBFC sectors.
Corporate credit which accounts for 49% of overall bank credit growth is expected to contract this fiscal due to lack of any capacity build-up. Besides, financially stronger firms have raised funds directly from the market.
That should change next fiscal, when corporate credit is expected to grow 5-6% led by the government’s infrastructure push and a likely revival in demand., , “Banks are expected to benefit from lower competition as non-banks, grappling with multiple challenges, see tepid growth” said Subha Sri Narayanan, Director, Crisil Ratings. “With deposit growth outstripping credit growth so far, banks would use the surplus liquidity to wrench credit market share away from some of the largest catchments of non-banks such as mortgages and new vehicle finance”.
But the share of corporate loans in the overall credit pie would continue to shrink because of faster growth of other segments. Retail lending, a major driver of bank credit in the past, is expected to slow down to 9-10% this fiscal before returning to the mid-teens growth of the past couple of years.