Analysts expect loan growth in Q3 to have been robust on the back of festive demand and the government’s credit guarantee scheme for small businesses.
The growth in non-food credit rose to an eight-month high of 6.53% year-on-year (y-o-y) during the fortnight ended January 1, from 6.03% in the previous fortnight. The last time non-food credit grew faster was during the fortnight ended April 24, 2020.
As on January 1, outstanding non-food credit stood at Rs 106.12 lakh crore, showed data released by the Reserve Bank of India (RBI). Deposits with banks stood at Rs 147.27 lakh crore, up 11.48% y-o-y. The credit-deposit ratio was 72.06%.
Most large banks have been saying that they are seeing a pick-up in economic activity and expect that to translate into higher loan growth, largely on the back of housing loans. Some private banks have also reported a strong growth in advances during Q3 ahead of their financial results.
After State Bank of India’s (SBI) Q2FY21 results, chairman Dinesh Kumar Khara had said that the bank was expecting an 8-9% credit growth in FY21 because economic activity had gathered pace. “We have already seen the growth as far as our book is concerned. We have seen growth of about 6% till September 30. Hopefully, with the unlocking happening, we should be in a position to reach better than 8%,” he observed.
For both public-sector banks (PSBs) and private banks, much of the fresh lending in the last few quarters has been in the government segment as also in gold loans. The emergency credit line guarantee scheme (ECLGS) has also helped step up loan sanctions to small enterprises. The RBI’s trend and progress report said that credit expansion was at a higher pace among PSBs during March, June and September, 2020 quarters, after three consecutive quarters of deceleration. Lending in rural areas has been a bright spot for banks in FY21. “Although the share of rural credit in the total has been hovering between 8 and 9%, its growth surpassed that of other categories in 2019-20, after a gap of four years,” the central bank said.
Analysts also expect loan growth in Q3 to have been robust on the back of festive demand and the government’s credit guarantee scheme for small businesses.
In a results preview, analysts at Axis Securities said, “Overall, we estimate business growth to recover, aided by pent up demand, a good festive season, and expect systemic loan growth for FY21 to pick-up from its lows.” At the same time, whether the recovery in credit demand sustains through Q4FY21 remains to be seen.