Credit growth crosses ₹10 lakh cr mark in FY22

The country saw incremental credit growth at ₹10.5 lakh crore in the financial year FY 2021-2022, which is 1.8 times higher than the growth of ₹5.8 lakh crore in FY21, SBI Research said in its Ecowrap report. Segment-wise, the jump in credit to MSMEs and infrastructure was strong at ₹2.3 lakh crore, while credit to the housing and NBFCs was close to ₹2 lakh crore.

Besides, retail loans also expanded by a sharp ₹3.7 lakh crore, driven by a surge in personal loans apart from housing credit. Credit to agriculture sector was at ₹1.3 lakh crore. “The economy was able to shrug off, to a large extent, the aftereffects of the pandemic as credit growth was broad-based across all sectors,” the report adds.

Showing an interesting pattern in credit growth, the SBI report flags that an expansion in public sector bank (PSBs) credit is crowding in credit growth from private sector banks, which will benefit the economy.

In FY22, the weighted contribution of PSBs to overall credit growth was as much as 43% from 27% in FY19. Simultaneously, the share of private banks in credit growth declined from 65% to 47% for FY22.

"The latest trends show PSBs have been continuously chipping away on the back of a robust asset quality and also some of the credit initiatives that were launched during the pandemic," says the report.

However, the share of incremental bank credit in incremental nominal GDP, which was 63% in the pre-pandemic year (FY19), plunged sharply to a decade low of 27% in FY22, the data shows. The average share was 50% for 7 year period ended FY20. This could rise beyond 50% in FY23, the report adds.

A higher credit-to-GDP ratio shows aggressive and active participation of the banking sector in the real economy, while a lower number shows the need for more formal credit.

Despite the positive outlook of credit growth for FY23, the inflation could play a spoilsport as a rate hike could dampen demand, it adds. Notably, an RBI study also indicates that an increase (decrease) in the policy rate by 100 basis points causes the credit to decline (increase) by 1.95%, with a lag of six quarters.

Factors like significant weakening of growth prospects from China could act as favourable conduits of a not so aggressive pace of rate hikes by central banks around the world, including the RBI, says the report. "Oil is likely to correct below $100, with even sub-$90 looking a possibility," says the report.

Going forward, as the project announcements in FY22 reach an all-time high, once the execution pace will start momentum, growth in credit demand could be seen, particularly in longer-term loans, the report adds. Several rounds of corporate deleveraging have been seen in the pandemic year and as capacity utilisation is also crossed 72% in Q3FY22, it’s expected that corporates will start their next round of the capex programme once global uncertainty phases out, adds the SBI report.