After a year of sluggish credit demand in FY13, bankers see some marginal improvement in credit growth in the next fiscal coming from sectors engaged in manufacturing which includes engineering, gems and jewellery, auto ancillaries. Besides that bankers expect retail credit demand to continue.
“The industry may grow by about 17-18% in terms of credit next fiscal. The manufacturing sector may see some growth driven by engineering, gems and jewellery, auto ancillaries and retail growth will continue driven by the housing loans. Interest rates may also fall by another 50 basis points next years. This fiscal the industry credit growth will be 15-16%,” said N Seshadri, executive director, Bank of India.
Bankers are of the view that now at least there is some willingness for the possibilities of some projects coming up. This is because there are expectations that the government will be able to sought out most of the issues pertaining to infrastructure. “People do not have specific projects. But at least they are able to see that there is probably some positive action coming up from the government. People are also thinking about some amount of capital expenditure,” said Seshadri.
Reserve Bank of India (RBI) data shows that for the fortnight ended November 16, bank credit grew by 16.85% year-on-year. In the second-quarter review of the monetary policy held on October 30, the RBI had revised its projections of bank credit growth to 16% in FY13 from 17% projected in April and July.
Most economists are of the view that growth in the economy is finally bottoming out and there are expectations that improvement is in store in 2013. This will be on the back of factors like domestic structural reforms, normalisation of agricultural output, improvement in non-agricultural output and fall in crude prices in real terms in the next few years.
“Credit growth is linked to GDP growth. If GDP growth picks up, that will boost bank credit. There are also expectations that the investment cycle which has slowed down, will also pick up next fiscal,” said K R Kamat, chairman and managing director, Punjab National Bank.
Public Sector Banks (PSBs) which did not have a very great year as far as their earnings are concerns are expected to see some improvement on the back of loan growth in FY14. Vishal Goyal and Stephen Andrews of UBS Investment Research wrote in a report last week that PSBs offer higher upside in terms of earnings as they are highly levered to a change in economic cycle and implementation of key reforms by the government. “Our upside case assumes loan growth of 15-20% as capex cycle revives in the changed environment and credit costs come down significantly to around 80-100 basis points from the current expectations of 100-150 basis points,” said Goyal and Andrews.