Bank credit likely to grow at 4-year high of 11-12% in FY23

Bank credit is likely to grow at a four-year high of 11-12 per cent in fiscal 2023, on the back of better economic growth and budgetary support from the government, according to a report.

In the fiscal ended March 2022, bank advances have likely grown at 9-10 per cent.

"Healthy economic growth and budgetary support from the government should lift bank credit growth by 200-300 basis points to 11-12 per cent this fiscal," Crisil Ratings said in the report.

The higher credit growth expectation is also supported by the improved resilience of the banking system, it added.

Its senior director and deputy chief ratings officer Krishnan Sitaraman said the biggest difference expected this fiscal is the upshift in the corporate credit growth trajectory, which is likely to double to 8-9 per cent.

"The Union Budget pegs public capex outlay at around Rs 7.5 lakh crore, a significant increase over the last fiscal, with a sharp focus on public infrastructure.

"The downstream impact of this on core sectors, along with the Production Linked Incentive (PLI) scheme announced for 13 key sectors, will be the drivers," he said.

Sectors that should see the maximum growth, given their industry dynamics, include metals and metal products, chemicals, engineering and construction, he noted.

The report said bank advances to micro, small and medium enterprises (MSMEs) could grow 12-14 per cent this fiscal, riding on the multiplier effect from some pick-up in capex.

This segment had seen higher credit growth in the past few quarters because of Emergency Credit Line Guarantee Scheme 2 ( ECLGS 2).

Home loans, which form the largest chunk of retail lending, will be a major driver of credit with residential purchases expected to continue at a solid clip this fiscal, the agency said.

At the same time, unsecured lending will also see some surge as lenders continue to find this segment attractive on a risk-adjusted return basis.

"Overall, the retail book growth will remain steady at 14-15 per cent this fiscal,” it said.

Agriculture credit growth, which is expected to grow at 9-10 per cent in fiscal 2022, will remain steady in the current fiscal on the expectation of a normal monsoon.

Crisil Ratings Director Sri Narayanan said the country's banking sector is structurally stronger today, and well-positioned to fund faster credit growth.

"Capital buffers are healthier with all public sector banks having a cushion of at least 100 bps over the regulatory requirement, while private banks continue to be solid on this score.

"Second, profitability metrics are at a 9-year high," he said.

Narayanan said the asset quality pressures are waning with sector-level gross NPAs likely declining by around 500 bps from their 2018 peak, because of the improvement in the corporate book.

he report, however, said a fresh surge in COVID-19 cases, a prolonged Russia-Ukraine war and a higher-than-expected slowdown in private consumption are the three things to keep a close watch on.