Credit offtake grew 17.9 per cent on a year-on-year basis, reaching a decadal high mark with the growth being driven by retail credit, higher working capital demand amidst high inflation and lower funds raised in the capital market.
Despite the rise in lending rates across the board, credit offtake, which expanded by a hefty 1,100 basis points for the fortnight ended October 7, is expected to remain elevated in the short term due to the ongoing festival season. In absolute terms, credit outstanding stood at Rs 128.6 lakh crore as on October 7, rising by Rs 19.56 lakh crore over the last 12 months, according to the latest Reserve Bank of India data.
The rise in the same period of last year was Rs 6.71 lakh crore.
The growth has been on an upward movement with both retail and wholesale contributing to the same. “Retail credit growth has been strong due to underlying demand, as credit outstanding saw a robust growth at 19.5 per cent year-on-year in August 2022 driven by the miniaturisation of credit, housing and vehicle loans. Driven by ECLGS, MSME growth too has remained strong. Corporate loans indicate a shift from the capital market to bank borrowings as hardening bond yields have prompted companies to optimize their borrowing cost,” Care Ratings said in a report.
The credit outstanding of the industry segment registered a growth of 11.4 per cent y-o-y in August 2022 from 1.5 per cent in the year-ago period due to inflation-induced higher working capital demand. Credit for the services sector also accelerated by 17.2 per cent y-o-y in August 2022 from a growth of 2.1 per cent in the year-ago period primarily due to a rise in NBFCs and trade segments, it said.
Credit growth likely to remain elevated in the short term
The credit growth is likely to remain elevated in the short term due to the ongoing festival season and inflation, but rate hikes could dampen credit growth. Global inflation has remained high despite hawkish policies, which may lead to demand issues globally causing second-order effects in India.
The credit growth is likely to remain elevated in the short term due to the ongoing festival season and inflation, the report said. Global inflation has remained high despite hawkish policies. This may lead to demand issues globally causing second-order effects in India. Credit offtake is expected to remain high, however rate hikes could dampen credit growth. Liquidity has generally been trending down with RBI seeking to reduce excess liquidity from the system to manage inflation. The banking system liquidity surplus has narrowed to Rs 0.1 lakh crore (as on October 19, 2022) from Rs 6.3 lakh crore at the start of FY23.
The Reserve Bank of India has already increased the repo rate by 190 basis points to 5.9 per cent — in four hikes — in FY23, so far, with additional hikes in the offing. Further, average 10-year bond yields crossed 7.4 per cent in October 2022, from 6.84 per cent in March 2022 and 6.63 per cent in December 2019 (pre-pandemic level) due to elevated domestic inflation, rate hike bets and higher global bond yields. The hardening bond yields have been driving a shift in the borrowings from the capital market to the banking system, the report said.
Meanwhile, deposits saw a slower growth at 9.6 per cent on a year-on-year basis. Deposits rates are expected to go up even further due to rising credit demand, widening credit deposit gap, ongoing festival season, lower liquidity in the market and elevated inflation.
Care report said over the last two years and a half years — from the last reporting Friday of March 2020 — credit offtake has overcome Covid-induced lag and has grown by around 25.2 per cent to almost catch up with deposit growth of 27.3 per cent over the period.
