Bank credit to grow 10% in FY22 on GDP expansion, policy measures: Crisil

NBFCs focused on gold loans and mortgages will be the least affected by the setbacks, Crisil report said

Banking system's credit growth will almost double to 10 per cent in 2021-22 on the economic recovery and policy interventions, ratings agency Crisil said on Thursday.

The quantum of gross non-performing assets (NPAs) will rise up to 10.5-11 per cent by the end of 2021-22, which is about a percentage point lower than what was initially expected, the agency said.

The GDP growth is expected to stand at 11 per cent for the newly begun fiscal year, after a 7.7 per cent contraction in the pandemic-impacted 2020-21, it said.

The second and third waves of COVID-19 infections are a risk to economic recovery but it may not result in widespread lockdowns and a faster vaccination drive will also help, the agency said.

From a banks' credit growth perspective, the agency said the expansion will accelerate by 4-5 percentage points to 9-10 per cent in 2021-22.

The faster credit growth will be led by retail loans, which are expected to grow in mid-teens, while corporate loans, which de-grew during 2020-21, are also likely to show a 5-6 per cent jump, it said.

The agency said corporate loans, which account for nearly half of the overall bank credit, were subdued in 2020-21 because of low capital expenditure (capex) and also impact on demand which curtailed the need for working capital. With the revival in the economy, stimulus measures by the government and the RBI and the Budget's focus on infrastructure, the same is expected to see an uptick, it said.

In 2020-21, the emergency credit guarantee loans scheme has been a key factor which drove the overall credit growth for the banking system, it said. Bank credit has shown a 'V-shaped' recovery during the second half of the fiscal, the rating agency added.

From an asset quality perspective, the corporate loans will show more resilience, and it will be loans to the retail and micro, small and medium enterprises segment which will drive up the overall NPAs for banks to 10.5-11 per cent, it said.

The agency, however, said the NPAs would have been higher by one percentage point if not for the policy interventions like a moratorium, one-time debt restructuring and keeping the bankruptcy proceedings on hold.

In the non-banks space, the overall assets under management (AUM) are estimated to grow by a slower rate of 5 per cent in 2021-22 and are yet to touch the pre-pandemic levels, the agency said.

The biggest inhibiting factor for the non-banking financial company (NBFC) industry will be funding sources to take care of the liabilities side, it said. Schemes like targeted long-term repo operations have helped the sector, it added.

The NBFCs' stressed assets have risen to up to Rs 1.8 lakh crore as of March 2021, with segments such as real estate finance, unsecured loans and small business finance being most stressed, it said.

NBFCs focused on gold loans and mortgages will be the least affected by the setbacks, it said.