MUMBAI: The next financial year is likely to keep banks busy as the demand for loans is expected to be higher.
According to the Economic Survey, the credit growth in the Indian banking sector is expected to be ‘brisk’ in the next financial year. The accumulation of deposits in the past few years has enabled banks to fund the growing credit demand.
The well-capitalised banking system with a low NPA ratio and more robust corporate sector fundamentals will continue to enhance the flow of bank credit into productive investment opportunities, notwithstanding the rising interest rates.
"Increase in the overall bank credit has also been influenced by the shift in borrower’s funding choices from volatile bond markets, where yields have increased, and external commercial borrowings, where interest and hedging costs have increased, towards banks. If inflation declines in FY24 and if the real cost of credit does not rise, then credit growth is likely to be brisk in FY24," noted the survey.
The banking sector in India has also responded in equal measure to the demand for credit as the Year-on-Year growth in credit since the January-March quarter of 2022 has moved into double-digits and is rising across most sectors.
The recovery in economic activity in FY22, along with the enhanced financial soundness of banks and corporates, has bolstered the expansion of non-food bank credit since June 2021.
"The YoY growth in non-food bank credit accelerated to 15.3 per cent in December 2022. This not only shows an acceleration in the growth of current economic activities but also an anticipation of continued momentum in economic activity in future," noted the survey.
Credit growth has been broad-based across sectors, with retail credit driving the growth primarily owing to rising demand for home loans. An increase in demand for housing induces greater investment which, in turn, sets off a virtuous cycle of growth and investment.
Credit to agriculture and allied activities gained momentum supported by the Government’s concessional institutional credit and higher agricultural credit target.
Industrial credit growth has been buoyed by a pick-up in credit to MSMEs, assisted by the benefits accrued from the effective implementation of the Emergency Credit Line Guarantee Scheme (ECLGS) and the support provided by the government’s production-linked incentive scheme and improvement in capacity utilisation.
Credit growth in services was driven by a recovery in credit to NBFCs, commercial real estate and trade sectors.
"As funds raised from the primary segment of domestic equity markets declined during FY23, reliance on bank credit for funding regular operations and capacity expansion increased," said the survey.