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Icra sees FY20 bank credit growth declining to 8.5% from 13.3% last year

The recent changes in mutual funds regulations are likely to result in a decline in the volume of commercial paper outstanding by March 2020

Press Trust of India  |  New Delhi 

Photo: iStock
Photo: iStock

Growth in may decelerate sharply to 8-8.5 per cent during 2019-20 from 13.3 per cent last fiscal, mainly due to decline in incremental credit in first half of the current financial year, rating agency said in a report.

"Moreover, with the bond markets remaining risk averse towards NBFCs, the YoY growth in the volume of bonds outstanding is expected to moderate to about 4 per cent in FY2020 from 12 per cent in FY2019," it said.

Additionally, the recent changes in mutual funds regulations are likely to result in a decline in the volume of commercial paper (CP) outstanding by March 2020, it said.

Considering these three domestic sources of funding, that is bank credit, corporate bonds and CP outstanding, expects year-on-year credit growth to decline to 6.2-6.8 per cent in FY20 from 13.5 per cent in the last financial year.

A shift of large borrowers such as and housing companies (HFCs) to the banking system for their funding requirements had boosted 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 has declined by Rs 0.19 trillion during H1 FY'20, in contrast to the rise of Rs 0.81 trillion during H1 FY'18 and Rs 3.51 trillion during H1 FY'19," it said.

The recent data on bank credit released by the (RBI) 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 H1 FY20, it said.

Within services, the credit outstanding to 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.

First Published: Mon, November 04 2019. 15:25 IST
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