Bank Credit Growth Shows Signs Of Life
Bank credit growth may hit a four-year high in 2022-23. Where is the growth coming from?
India's largest lenders are stepping up the pace of lending as pandemic driven uncertainties recede and higher input prices push up the need for working capital. The trend, if it persists, could push-up credit growth to a four-year high in 2022-23.
Private lenders that have reported earnings so far have shown a pick-up in credit growth.
HDFC Bank Ltd., the country's largest lender, reported 21% year-on-year growth in its loan book compared to 16% in the previous quarter. Sequentially, the loan book grew at 9%.
ICICI Bank Ltd. saw its loan book grow 17.1% year-on-year and 5.5% quarter-on-quarter.
Axis Bank Ltd. reported 15% growth in loans over a year ago and 6% quarter-on-quarter.
IndusInd Bank Ltd. reported relatively slower growth in its loan book at 12% year-on-year and 5% quarter-on-quarter.
Most public sector banks are yet to report earnings.
Overall, bank credit grew 9.6% in 2021-22, shows data released by the RBI on Friday. This could rise further in the current financial year.
Healthy economic growth and budgetary support from the government should lift bank credit growth by 200-300 basis points to 11-12% this fiscal.CRISIL Research
Retail and small business lending continues to lead growth.
"On retail, we witnessed healthy growth on disbursals across products, resulting in asset growth of 5% over the prior quarter and 15% over the prior year," said Srinivasan Vaidyanathan, chief financial officer at HDFC Bank, told analysts in a conference call. "The wholesale business too showed a sharp rebound across sectors, growing 11.6% over prior quarter and 17.4% over prior year," he added.
"Disbursements across various retail products increased in the fourth quarter of 2022 compared to the previous quarter," Sandeep Bakhshi, chief executive officer of ICICI Bank, said during the lender's post-earnings analyst call. The business banking portfolio grew by 43.2% year-on-year and 10.2% sequentially, while the SME portfolio grew by 33.6% year-on-year and 11.3% sequentially, Bakhshi said.
Axis Bank, which saw its retail loan book grow 21% year-on-year and 9% sequentially, spoke of growth being led by personal loans, home loans, loans against property and small business banking.
The Inflation Impact
One factor boosting demand for credit is higher input cost inflation. Wholesale inflation has remained in double digits for nearly a year now and hit 14.5% in March 2022.
This has increased working capital requirements for corporations.
"In this (business banking) segment, most of our loans are working capital loan," said Rakesh Jha, chief financial officer of ICICI Bank during the analyst call. With inflation, the working capital requirements have gone up, Prashant Kumar, chief executive officer of Yes Bank told BloombergQuint.
Demand for working capital will likely sustain given higher prices of raw material, said Amit Khurana, head of equities and research at Dolat Capital. However, substantial credit demand linked to capital expenditure may still be some time away.
Prakash Agarwal, head for financial institutions at India Ratings & Research, agreed. Working capital demand from corporates is likely to remain high as the working capital cycle normalises and inflation keeps inventory costs high," he said.
Shift Away From Bond Markets
Banks are also benefiting via a shift away from bond markets. While a flood of liquidity had brought down rates in the debt markets over the past two years, these have risen sharply over the past one year. In contrast, since the RBI has not raised its policy rates, the cost of borrowing from banks have not risen as much.
"The shift from bond market to banks is likely to continue as interest rates move up. Nevertheless, the outlook for medium term is less certain given skepticism of demand holding up in face of high inflation," Agarwal said.
Primarily we are seeing some wholesale borrowers like NBFCs, HFCs and public financial institutions, who have access to debt capital markets, are availing bank credit as the investor appetite for the bonds appears to be muted amid rising bond yields.Anil Gupta, Head - Financial Institutions, ICRA
Gupta added that, within the wholesale segment, borrowing has picked up from government-backed entities which are involved in urban development, power and civil supplies.
“The biggest difference we expect this fiscal is the upshift in the corporate credit growth trajectory; we see it doubling to 8- 9%," said Krishnan Sitaraman, deputy chief ratings officer at CRISIL Ratings in a press note dated April 29. Sectors that should see maximum growth include metals and metal products, chemicals, engineering and construction, Sitaraman said.
Bank credit to micro, small and medium enterprises (MSMEs) could grow 12-14% this fiscal, riding on the multiplier effect from some pick-up in capex.CRISIL Research
Retail Loan Demand & Supply Holds Strong
Alongside demand for retail loans remains strong, led by mortgages. According to SBI Economic Research, the share of retail loans in incremental credit in FY22 stood at 44%. It may hold strong in the current financial year too.
Home loans will keep driving demand as "residential purchases expected to continue at a solid clip this fiscal", said CRISIL.
There will be surge in unsecured lending also, "as lenders continue to find this segment attractive on a risk-adjusted return basis. Overall, the retail book growth will remain steady at 14-15% this fiscal," the rating agency added.