Retail fuels a near-3x growth in bank credit


MUMBAI : Bank loans are growing at nearly thrice the rate of last year to approach the fastest pace in nearly 11 years, official data showed, a phenomenon that experts credited primarily to retail borrowers.

Outstanding non-food bank credit stood at 123.9 trillion as on 12 August, up 15.8% from year ago, showed data from the Reserve Bank of India (RBI). A year ago, the corresponding figure stood at 5.52%. This is the highest credit growth in a fortnight since December 2011.

While disaggregated data on which sectors are seeing the maximum credit growth comes with a lag, recent trends point to retail loans as the primary source of such high growth. RBI data for July showed that aggregate retail loans stood at 35.9 trillion, up 18.8% from the year earlier. Housing loans—the largest chunk of retail credit—grew 16.2% from a year earlier to 17.7 trillion, with bankers seeing no lull in demand despite rising interest rates. Apart from personal loans, the primary driver of this growth has been the micro, small and medium enterprise (MSME) segment.

“We continue to feel confident about retail and micro, small and medium enterprise (MSME) sectors driving credit growth for the banking system—led by better credit demand and ability to underwrite due to availability of relevant data,” analysts at Kotak Institutional Equities said in a report on 22 August.

According to Care Ratings, small-ticket loans, credit card receivables, housing, vehicle, and consumer durable loans continue to account for retail credit growth.

“After the modest credit growth in recent years, the outlook for bank credit offtake is positive due to the economic expansion tracking nominal gross domestic product (GDP) growth, rise in government and private capex, rising commodity prices, implementation of the production-linked incentive (PLI) scheme, the extension of emergency credit line guarantee scheme (ECLGS) for MSME and retail credit push,” Care Ratings said on 30 August.

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Bankers are quite bullish that this trend of high credit growth despite rising interest rates will continue, relieving them from the margin pressures seen last year. The largest domestic lender, State Bank of India (SBI), expects to maintain the current momentum and grow its loan book by 15% in the current financial year, chairman Dinesh Khara told analysts on 6 August.

“Till now, when it comes to retail, we are not seeing the demand tapering off; we have decent visibility of the demand, and I hope that it will continue. When it comes to small and medium enterprises, there is a reasonably good pipeline,” Khara said.

Analysts are also upbeat about the revival of credit demand, although it is to be seen how long such a high pace can be sustained. Analysts at Motilal Oswal said in a report on 29 August that while any material change in the demand environment needs to be monitored, given the challenging macroenvironment, credit is expected to grow 12% and 13.5% yoy in FY23 and FY24, respectively.

“Banks with a higher current account, savings account (CASA) and floating rate loans are likely to be better placed in a rising rate environment,” the Motilal report said.

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