Bank loans are likely to grow at a four-year high of 11-12 percent during the fiscal year 2023, on the back of better economic growth and budget support from the government, according to a report. In the financial year ended March 2022, bank advances have probably increased by 9-10 percent.
“Healthy economic growth and budget support from the government should increase bank credit growth by 200-300 points to 11-12 percent this budget,” Crisil Ratings said in the report. The higher credit growth expectations are also supported by the banking system’s improved resilience, it added.
Its Senior Director and Deputy Chief Rating Officer Krishnan Sitaraman said the biggest difference expected in this budget is the upturn in the corporate credit growth path, which is likely to double to 8-9 percent.
“The Union budget sets public investment expenditure at around 7.5 lakh crore, a significant increase over the most recent budget, with a sharp focus on public infrastructure. 13 key sectors, will be the driving forces, ”he said.
Sectors that should see maximum growth, given their industrial dynamics, include metals and metal products, chemicals, engineering and construction, he noted. The report said that banks’ advances to micro, small and medium-sized enterprises (MSMEs) could grow by 12-14 percent in this tax collection, due to the multiplier effect from a certain increase in investment spending.
This segment had seen higher credit growth in recent quarters due to the Emergency Credit Line Guarantee Scheme 2 (ECLGS 2). Mortgages, which make up the bulk of lending to individuals, will be a major driver of credit with home purchases that are expected to continue with a steady cut this tax authority said, the agency said.
At the same time, unsecured lending will also see a certain increase as lenders continue to find this segment attractive on a risk-adjusted return basis. “Overall, retail growth will remain stable at 14-15 percent this fiscal year,” it said. Agricultural credit growth, which is expected to grow by 9-10 percent during the financial year 2022, will remain unchanged in current fiscal policy with the expectation of a normal monsoon.
Crisil Ratings Director Sri Narayanan said the country’s banking sector is structurally stronger today and well positioned to finance faster credit growth. “Capital buffers are healthier with all public banks having a cushion of at least 100 bps above regulatory requirements, while private banks continue to be solid at this point. Second, profitability statistics are at the highest level in nine years,” he said.
Narayanan said that the pressure on asset quality decreases with gross NPA at the sector level, which is likely to decrease by about 500 bps from its peak in 2018, due to the improvement in the company book. However, the report said that a new increase in COVID-19 cases, a protracted war between Russia and Ukraine and a more than expected decline in private consumption are the three things to keep a close eye on.