Bank credit to rise 9-10% in FY22 on budget support, RBI measures: Crisil

Despite bank credit contracting by 0.8 per cent in the first half of the current fiscal (H1FY21), the rating agency expects it to rise by 4-5 per cent at the end of the current fiscal (FY21)

Bank credit is expected to grow 9-10 per cent in FY22 as the economy recovers gradually from the slowdown, backed by budgetary support and growth-boosting measures of the central bank, said rating agency Crisil in its report.
 

Despite bank credit contracting by 0.8 per cent in the first half of the current fiscal (H1FY21) because of the slowdown in the economy due to the raging virus, the rating agency expects it to rise by 4-5 per cent at the end of the current fiscal (FY21), which is a departure from the earlier estimate it had given in June 2020, where it had forecast a bank credit growth of 0-1 per cent in FY21.
 

The change in forecast is because of a quick recovery in economic activities post gradual opening up of the economy.
 

It was further aided by the pent-up demand as well as the festive demand post the lockdown.
 

While growth in credit to corporates is expected to shrink in the current fiscal year (FY21) as they have deferred their capital expenditure plans, in FY22 corporate credit growth is expected to be in the range of 5-6 per cent, aided by the central government’s infrastructure push and a likely revival in demand, the rating agency says.
 

Similarly, retail loans, which have driven the bank credit growth so far, are expected to slow down to 9-10 per cent in FY21 before returning to the mid-teens growth of the past couple of years. Credit to micro, small, and medium enterprises (MSME), is expected to slow down marginally in the next fiscal to 8-9 per cent, given the benefits of emergency credit line guarantee scheme (ECLGS) may not be available. In FY21, credit to MSME sector is expected to grow by 9-10 per cent.
 

Credit to the agriculture sector is expected to grow in the 6-7 per cent range in this fiscal as well as the next fiscal, but a lot will depend on the monsoon.
 

“Overall, sharp economic recovery, along with pick-up in private investment and capex demand, drive our expectation of buoyant credit growth next fiscal. A sub-normal monsoon and another surge in Covid-19 cases leading to localised or partial lockdowns pose downside risks,” the Crisil report said.
 

The rating agency has also raised the country’s gross domestic product (GDP) forecast for FY22 to 11 per cent, which is 100 basis points higher than what was estimated in December.
 

“While bank credit growth had contracted 0.8 per cent in the first half of this fiscal, it recovered sharply in the third quarter by growing about 3 per cent sequentially. In the fourth quarter, too, it should clock 3 per cent sequential growth. Government measures, including the Rs 3 trillion emergency credit line guarantee scheme (ECLGS), have been supportive”, said Krishnan Sitaraman, Senior Director, Crisil Ratings.
 

According to the rating agency, in the April - December period of FY21, net credit, in absolute terms, increased by Rs 2.3 trillion, of which disbursement under the emergency credit line guarantee scheme was Rs 1.6 trillion. Besides Rs 2.3 trillion incremental credit disbursement, banks deployed around Rs 1.4 trillion via the targeted long-term repo operation (TLTRO) and partial credit guarantee (PCG) scheme, which served as credit substitutes.
 

Hence, if we factor in the deployment of banks towards TLTRO and PCG schemes, the fiscal-to-date credit growth would be higher by 130 bps.