Non-food bank credit is expected to grow 11-12% in FY17, with private sector banks recording faster growth, rating agency ICRA said on Tuesday.
“Considering the realignment of interest rates on small savings schemes that compete with bank deposits, as well as the expected redemption of FCNR (B) deposits that were mobilised in September-November 2013 for a three-year tenure, ICRA expects bank deposits to expand by 10-11% in FY2017,” it said in a statement.
Bank deposits and non-food credit rose by a modest 9.2% and 10.9%, respectively, between March 20, 2015 and March 18, 2016.
Karthik Srinivasan, senior vice-president and co head-financial sector ratings at ICRA, said, “Bank deposit and credit growth are expected to record a mild uptick in FY2017, printing in the low double-digits.”
He added that the extent of pick-up in credit growth will largely be dependent on the magnitude of offtake in credit-intensive sectors as well as easing of supply-side constraints, specifically for public sector banks pertaining to capital requirements and for addressing weak asset quality indicators.
According to ICRA, while interest rates in the capital markets were softer than bank base rates during FY16, implementation of the marginal cost of funds-based lending rate (MCLR) from April 1, 2016 could improve banks’ competitive position and boost bank credit growth to an extent
However, issuance of UDAY bonds, it said, would continue to exert downward pressure on bank credit growth in FY2017. On balance, ICRA expects bank credit growth to improve marginally to 11-12% in FY2017, with private sector banks likely to post higher growth.