Incremental credit growth hits 13-year high in August: Report

Incremental bank credit rose by 4.8% in August 2022, the highest growth reported in the last thirteen years and after a negative growth for three years, according to CareEdge.

Credit for retail loans rose by 7.9% in August compared with 1.6% reported during the year-ago period, the ratings agency says. Industry credit rose by 1.2% from a drop of 2.6% over the year-ago period due to inflation-induced working capital requirements and improvement in capacity utilisation. Services' credit also increased by 4.8% as against a drop of 2.8% in August 2021.

Gross credit registered a robust growth of 15.5% year-on-year in August 2022 from 6.7% over a year ago, CareEdge says.

In terms of sub-segmental performance, other personal loans (growth of 23.1%), housing (growth of 16.4%), vehicle loans (growth of 19.5%), Micro, Small and Medium Enterprises (MSME) (growth of 30.2%), NBFCs (growth of 27.8%) and trade (growth of 16.9%) were the key growth drivers, the report says.

The credit of the retail loans segment (largest segment with a 31.6% share in bank credit) saw a robust growth of 19.5% year-on-year in August 2022 primarily due to growth in other personal loans (23.1%), credit card receivables (27.3%) and consumer durable loans (65.2%) driven by a low base, onset of the festival season and stable job market condition.

All sub-segments have reported growth within the retail loans segment during the period. The housing loans (share of 49.0% within retail) grew at 16.4% y-o-y in August 2022 as compared with 11.6% in the year-ago period. Vehicle loans (share of 12.2% within retail) registered a growth of 19.5% y-o-y in August 2022 as compared to 11.1% in the year-ago period. Consumer durables (share of 0.9% within retail) continued its robust growth of 65.2% y-o-y in August as compared with a growth of 46.6% in the year-ago period due to onset of festival season.

Incremental credit growth of the retail segment stood at 7.9% in August 2022, from 1.6% over a year ago. In absolute terms, the credit outstanding has reached ₹36.5 lakh crore as of August 26, 2022, from ₹33.8 lakh crore as of March 25, 2022.

The services sector credit rose by 17.2% y-o-y in August 2022 as compared to marginal growth of 2.1% over a year ago period due to growth in the NBFCs, and wholesale trade. The remaining segments of the services sector too reported growth except for the aviation segment (which dropped by 21.2%).

Outstanding industry credit stood at ₹31.9 lakh crore as of August 26, 2022, from ₹31.6 lakh crore as of March 25, 2022. The credit outstanding of the industry segment registered a growth of 11.4% y-o-y in August 2022 from 1.5% in the year-ago period. The growth was due to robust growth in the MSMEs which were driven by ECLGS, inflation-induced working capital requirements, and ease of doing business supported by increasing digitisation in the banking system for faster loan turnarounds.

The credit growth is likely to remain elevated in the short term due to the onset of the festival season, says CareEdge.

"The medium-term prospects look promising with diminished corporate stress and a substantial buffer for provisions. However, inflation remains a key risk. Even as RBI has managed domestic inflation to some extent, global inflation has remained high despite hawkish policies. This may lead to demand issues globally causing second-order effects in India," the rating agency says.