Growth in credit offtake at 9-yr high

 

Growth in credit offtake at 9-yr high, with retail driving demand

Bank credit grew at 16.2 per cent in the fortnight ended September 9, the highest in about nine years, aided by revival in the economic activity post-Covid, increased working capital demand, rising discretionary spending and low-base effect.

credit rose 16.2 percent to Rs 125.5 lakh crore as of September 9'22 over last year's levels. This is reckoned to be the highest growth in more than eight years and more than double the pace of 6. per cent growth in September'21.23-Sept-2022

We expect credit demand to remain high but think the financial system will scramble for resources to fund credit growth. Consequently, there could be pressure on deposit rates in the coming few months,” said Suresh Ganapathy & Param Subramanian of Macquarie Research in a recent report.

rCedit offtake saw a 16.2 per cent year-on-year robust growth, expanding by a significant around 948 basis points (bps), for the fortnight ended September 9, 2022. The growth is nearly the highest in the last 9 years (16.3 per cent credit growth: October 18, 2013),” said Saurabh Bhalerao, associate director—BFSI research, Care Ratings. A basis point is one hundredth of one percentage point

This rise in demand for loans has been driven by sustained retail and improving wholesale credit, which is likely to continue the rest of the fiscal, experts said. “There is a pick-up in the economy and we are seeing normalcy coming back in all the sectors post-Covid. The discretionary spending in the retail segment, which were being postponed, are now being bunched up. The demand for working capital demand from corporates has started,” said Suresh Khatanhar, deputy MD, IDBI Bank.

The growth in credit has been on an upward trajectory since the latter half of FY22 and has been in double digits since April 2022, despite a 140-basis point hike in repo rate — the rate at which the RBI lends money to banks to meet their short term funding needs — since May this year.

Bankers said that with hardening of bond yields, corporates are now shifting to banks from the capital market for their funding requirements.

“Earlier, when the interest rates were lower, corporates preferred the bond market route to raise funds. However, with the reversal in bond yields, they are now shifting to banks,” said Khatanhar.

The 10-year bond yield has increased to 7.35 per cent as on September 26, from around 7.24 per cent on September 2.

Credit growth has remained over 15 per cent for three consecutive fortnights now, indicating a sustained pick-up in demand. For the fortnights ended August 26 and August 12, banking credit grew at 15.5 per cent and 15.3 per cent, respectively.

But deposit growth has been trailing growth by a large margin. Deposits in the banking system grew 9.5 per cent YoY for the fortnight ended September 9. The credit-deposit gap has widened to 670 basis points and the widening gap has exacerbated concerns that slow deposit growth may emerge as one of the biggest constraints for loan growth in the system.

With liquidity in the system tightening, banks are expected to get aggressive in garnering deposits to support credit demand in the system. This is also expected to move the needle on deposit rates, which have not moved in tandem with lending rates. Earlier this week, liquidity in the banking system slipped into a deficit mode for the first time in over three years, signalling a structural shift away from loose financial conditions in the economy.

Credit growth has seen sustained a rise since April this year, despite the RBI adopting a tighter monetary policy stance. The RBI’s six-member Monetary Policy Committee has increased the benchmark repo rates by 140 basis points since May this year and consequently, the banks have increased their external benchmark linked loans by the same proportion