Banks are in a good position to meet the rising credit demand due to their improved asset quality, return to profitability, strong capital and liquidity, the Reserve Bank of India (RBI) said on Thursday. “Despite significant global spillovers, asset quality and profitability, capital and liquidity in the Indian banking system provide comfort,” the central bank said in its latest financial stability report.
This rise in loans disbursals has been broad-based across geography, economic sectors, population groups, organisations, type of accounts and bank groups. Nevertheless, credit growth was higher among private banks in comparison to state-owned ones.
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Among specific categories, share of loans to the services sector and personal loans inched higher within the overall pie. Within the personal loan segment, credit card receivables and automobile loans grew over 20% y-o-y in as on September, data from the RBI showed. Loans to the systematically important micro, small and medium-sized enterprises (MSMEs) sector rose 15.3% y-o-y.
While the systemic loan growth so far has been driven by retail loans and working capital loans, RBI notes that corporate debt has been increasing gradually from pandemic lows, signalling a likely upturn in the new private investment cycle.
“With moderation in overseas issuances and declining investments by private equity (PE)/venture capital (VC), the financing needs of the corporate sector are increasingly being met through domestic resources,” RBI said.
“As funds raised from the primary segment of domestic equity markets declined during FY 2022-23, reliance on bank credit for funding regular operations and capacity expansion is increasing,” it added.
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However, deposits continued to play catch-up, rising a mere 9.4% in the fortnight ended December 16. Specifically, both term deposits and current account savings account deposits (CASA) rose nearly 9% y-o-y as on September.
Return on equity and return on assets continued rose to 11.2% and 1%, respectively, in September 2022 after declining continuously over the last two years.