Bank Credit Growth To Moderate To 8.5% In FY20: ICRA
Growth in bank credit may decelerate sharply to 8-8.5 percent during 2019-20 from 13.3 percent last fiscal, mainly due to decline in incremental credit in first half of the current financial year, ICRA said in a report.
"Moreover, with the bond markets remaining risk averse towards NBFCs, the year-on-year growth in the volume of bonds outstanding is expected to moderate to about 4 percent in fiscal year 2020 from 12 percent in FY2019," the ratings agency said.
Additionally, the recent changes in mutual funds regulations are likely to result in a decline in the volume of commercial paper outstanding by March 2020, it said.
Considering these three domestic sources of funding, that is bank credit, corporate bonds and commercial papers outstanding, ICRA expects year-on-year credit growth to decline to 6.2-6.8 percent in FY20 from 13.5 percent in the last financial year.
A shift of large borrowers such as non-banking financial companies and housing finance companies to the banking system for their funding requirements had boosted bank credit growth in FY19, it said.
However, factors such as muted economic growth, lower working capital requirements of various borrowers, as well as risk aversion among lenders, have compressed incremental credit in first half of the current fiscal, it said.
"Incremental bank credit has declined by Rs 0.19 lakh crore during H1(first half) FY20, in contrast to the rise of Rs 0.81 lakh crore during H1FY18 and Rs 3.51 lakh crore during H1FY19," it said.
The recent data on bank credit released by the Reserve Bank of India reveals that the contraction in incremental credit outstanding to the services as well as the industrial segments, offset the entire growth in credit to the retail segment during H1FY20, it said.
Within services, the credit outstanding to NBFCs increased. However, the decline in trade credit and other services (which also includes HFCs) resulted in the overall contraction in credit outstanding to the services segment in H1 FY20.