Banks divided on credit growth outlook: Report | The Financial Express

Banks divided on credit growth outlook: Report

As per the survey, 74% of banks expect infrastructure loans to increase.

Banks divided on credit growth outlook: Report
Banks are also seeking an upward revision in priority sector lending limits for agriculture, renewable energy, NBFCs for on-lending, housing and education loans. (IE)

Bankers have different expectations of loan growth going ahead even as the current level of non-food credit has witnessed a rapid increase in the past couple of months. Although the banks are optimistic, some are expecting the pace of loan growth to slow down over the next six months, a report by the trade body Federation of Indian Chambers of Commerce & Industry (Ficci) and Indian Banks’ Association (IBA) said.

Of the total banks surveyed, 48% of banks are expecting non-food industry credit growth to be above 10%, 24% expect growth to be in the range of 8-10% and the remaining 28% expect it to be below 8%, as per the fifteenth round of survey by Ficci and Indian Bank’s Association (IBA) conducted between January and June 2022. The survey consisted of 25 banks including the public sector, private sector and foreign banks, which all put together represent about 76% of the banking industry, as classified by asset size.

The banking sector posted credit growth of 15.8% year-on-year (y-o-y) as of the fortnight ended August 12, the latest data from the Reserve Bank of India (RBI) shows. With this, banks’ credit grew by 15% for two consecutive fortnights in a row, which has been growing over 10% from June onwards. During the quarter that ended June 30, credit growth stood at 14.2% as compared to 6% a year ago.

“Major infrastructure development plans have been in place by the government to facilitate quick capital spending with a strong multiplier effect. This is likely to spur demand for infrastructure financing,” the report said.

As per the survey, 74% of banks expect infrastructure loans to increase. Among other sectors, an uptick is seen in the long-term loans to metals, chemicals, food processing, pharmaceuticals, auto and real estate sectors. Most banks are expecting credit standards for large enterprises to remain unchanged as against 78% in the last round.

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Although personal loan growth trumps other segments, the RBI’s sectoral credit data shows an uptick in loans to industry, with loan growth to infrastructure companies at 9.5% in June. As capacity utilisation is currently at 75%, the corporate is expected to put to use its sanctioned loans, State Bank of India (SBI) chairman Dinesh Khara said after the bank’s Q1FY23 results.

On deposit growth, a majority of banks have seen an increase in the current account and savings account (CASA) deposits due to a reduction in the interest rate spread between the fixed deposit rate and saving deposit rate, increased focus by banks on low-cost deposits in line with the credit growth, the report said.

The RBI, while releasing quarterly data on banks, had noted that the credit growth is outpacing deposit growth in the recent period, leading to an increase in the credit-deposit ratio to 73.5% as of June 30 as compared to 70.5% a year ago. As of the fortnight ended August 12, deposits grew by 8.8% as compared to loan growth of 15.8% y-o-y in the same period.

Going forward, banks are expecting an improvement in asset quality, with more than 50% of banks expecting the Gross non-performing asset (NPA) levels to be below 8% by the end of the calendar year. Despite that, 65% of the respondent banks expect NPAs in the MSME sector to increase in the next six months, while sector-wise, aviation, tourism and hospitality, power and retail trade are likely to remain pain points for banks in terms of asset quality.

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“Recovery of the economy from covid-19 shock, higher credit growth, substantial deleveraging of corporate balance sheets, better performance of the industry, healthy capital position, use of recovery agencies, transfer of NPA Accounts to NARCL were cited as the key factors by respondent bankers who reported gross NPAs to be below 8% and in the range of 8-9% over the next six months,” the report said.

Banks are also seeking an upward revision in priority sector lending limits for agriculture, renewable energy, NBFCs for on-lending, housing and education loans. Banks have also suggested adding more sectors and sub-sectors including the entire agri-value chain as well as areas related to climate sustainability. The RBI had recently issued a paper suggesting ways for banks to make structural changes to adapt to financial risks arising from climate change.

The banks have also witnessed increased expenditure on digitization, and new technologies leading to higher operating expenses. Of the total banks surveyed, 37% banks said that their average technology expenses as a share of the operating expenses for FY22 were above 8%, while another 36% saw such expenses in the range of 5-8%, with most investments in cybersecurity having higher priority. Cybersecurity investments increased for 73% of banks while cloud-based solutions and new platforms were the other key investment areas.

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