Driven by strong demand for personal loans, NBFC growth and liquidity crunch, credit offtake grew by 15 per cent yoy in India in March. With this, India witnessed the sharpest rise in borrowings in last eleven years
Riding on the back of robust demand for personal loans, NBFCs growth, and higher working capital requirements due to inflation, credit offtakes reached at a 11-year high in FY23. Also, as per CARE Edge report, the offtakes has overcome the Covid-induced lag Relative to deposit growth. Additionally, it has remained strong even amid the significant rise in interest rates, and global uncertainties related to geo-political, and supply chain issues.
As per the report, credit offtake rose by 15 per cent year-on-year for the fortnight that ended March 24, 2023. However, the data shows an increment in borrowings throughout the year in FY 22-23. Credit offtake increased by ₹17.8 lakh crore to ₹136.8 lakh till March 24, 2023, from March 2022, said the report.
Despite consecutive Repo rate hikes, borrowings increased by 15 per cent yoy till March 2023. The increase in borrowing within a year has set the record of being the longest annual jump in credit offtake within the last eleven years.
In contradiction to the rise in credit offtake, there was a slump in deposit growth. India witnessed a slower deposit growth at 9.6 per cent yoy compared to credit growth for the fortnight that ended on March 10, 2023.
There are expectations of a further rise in deposit rates due to high policy rates and growing competition between banks for raising deposit rates to meet strong credit demand. Other factors like a widening gap between credit and deposit growth and lower liquidity in the market will also play a key role in boosting deposit rates.
Key drivers behind strong credit growth
As per the report, strong credit growth in FY23 was the result of the lower base of the last year, unsecured personal loans, housing loans, auto loans, etc. Higher demand from NBFCs also played a key role in boosting the credit demand. Apart from that inflation-induced high working capital requirements in selected industries, and the falling value of the Indian Rupees compared to its global peers also affected the credit growth.
The credit growth saga remained protected from global uncertainties like supply-chain issues and geo-political situations.
The report also drew attention to a large number of issuance of Certificates of Deposits (CD). The rise in the issuance of CDs was the result of a widening gap in credit and deposit growth, a liquidity crunch, and strong credit demand.
“Banks are keeping their CD issuance elevated to meet short-term requirements amid lower liquidity and focusing on shoring up the deposits to meet robust credit demand. The outstanding CDs stood at ₹3.0 lakh crores as of March 24, 2023, as compared to Rs.1.5 lakh crore a year ago," said Care Ratings in its report.
Further, CARE Edge's note highlighted that credit offtake at 15% for FY23 — has overcome the Covid-induced lag Relative to deposit growth. Additionally, it has remained robust even amid the significant rise in interest rates, and global uncertainties related to geo-political, and supply chain issues.
Going ahead, the rating agency expects credit growth to be in sync with the GDP growth in FY24. However, it added, slowdown in global growth due to rising interest rates, and rate hikes in India could impact credit growth.
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