Credit growth crosses Rs 10 lakh crore in FY22, driven by all sectors: Report
NEW DELHI:
Incremental credit growthcrossed Rs 10 lakh crore mark in financial year 2021-22, a report by
State Bank of India (SBI) economists showed
The
credit growth was 1.8 times higher than Rs 5.8 lakh crore achieved in previous financial yea
The report noted that expansion in in public sector bank (PSBs) credit is crowding in credit growth from private sector banks (PVB).
In FY22, the weighted contribution of PSBs in overall credit growth was as much as 43%, up from 27% in FY19. Simultaneously, the share of PVBs in credit growth declined from 65% to 47% for the year ended FY22.
In the past, whenever credit growth turns the corner and jumps from single digit to double digit, the share of PVBs has always jumped commensurately, the report said.
It seems that the PSBs are always early movers at the beginning of a pick-up in credit cycle and later become all pervasive when the PVBs join the bandwagon, the report added.
Segment-wise credit growth
Jump in credit to MSMEs and infrastructure was strong at Rs 2.3 lakh crore while credit to housing and the NBFC sector was close to Rs 2 lakh crore.
Retail loans expanded by a sharp Rs 3.7 lakh crore, driven by a surge in personal loans apart from housing credit. Credit to agriculture was at Rs 1.3 lakh crore.
"It seems that the economy was able to shrug off, to a large extent, the aftereffects of the pandemic as credit growth was broad-based across all sectors," the report said.
Besides, personal loans hold 35% share in incremental bank credit for the year.
In other words, sectoral data shows share of personal/retail loans in incremental credit for the years stands around 44%, followed by services 31% and industry at 23%.
'Covid a test for global financial system'
The report termed Covid pandemic to be the first major test of global financial system since the implementation of reforms following the global financial crisis of 2008.
"The timely policy interventions has helped alleviate stress experienced by individuals, MSMEs, corporates and lenders, and by keeping access to finance open on easy terms," it said.
Further, it noted that even before the pandemic credit growth in banking industry was muted. It was impacted adversely by the Covid pandemic and stood at its lowest level of 5.1% in October 2020, lowest since May 2017.
However, measures taken by RBI and government helped in recovery and it became visible with ASCB's credit growing by 9.6% in FY22, the report said.
Incremental credit-to-GDP may breach 50%
Economists at SBI believe that The share of incremental bank credit in incremental nominal GDP is likely to cross the 50 per cent mark in the current financial year, from a decade low of 27 per cent in FY22.
The incremental credit to GDP share was as high as 63 per cent in the pre-pandemic year (FY19). The average share was 50 per cent for the seven-year period ended FY20.
A higher credit-to-GDP ratio indicates aggressive and active participation of the banking sector in the real economy, while a lower number shows the need for more formal credit.
"For FY23, we believe that the share of bank credit may again breach the 50 per cent mark indicating the increasing role of banks in economic growth," the report said.
'Inflation can play spoilsport'
SBI Economists believe that even though outlook for credit growth looks positive in FY23, current inflation trends could play spoilsport.
Rate hikes by RBI could have a dampening impact on credit demand just when the economy is recovering.
The report quoted a study by RBI which indicates that a 100 basis points rise in policy rate causes credit to decline by 1.95% with a lag of 6 quarters. In other words, policy rate or repo rate is negatively related with credit growth.
"Even though the markets are talking about aggressive rate hikes, we believe that things may turn abruptly favorable as the world grapples with the current geo-political conflict,"
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