Increased demand for retail loans, strong growth in lending by private banks and pick-up in economic activity are likely to improve credit growth to 8-9 per cent in the next financial year, says a report.
So far this year, loan growth has slowed to around 7-7.5 per cent.
"The prolonged slowdown in bank lending may be bottoming out this fiscal, with gross credit offtake set to rise 8-9 per cent on-year in FY21, a good 200-300 basis points (bps) over the likely growth of around 6 per cent this fiscal," rating agency Crisil said in a report.
During this fiscal, some growth momentum is expected in the fourth quarter, after subdued three quarters due to traditional fiscal year ending growth.
The RBI's move to exempt banks from cash reserve ratio (CRR) requirement for incremental credit to certain sectors for up to five years, will also support lending.
The rating agency said retail credit should continue to grow at a healthy rate of around 16 per cent, next year, supported by sustained demand for unsecured loans, muted business growth for non-banks as well as steady levels of pool purchases.
Securitisation transactions through the direct assignment route have surged almost 40 per cent to Rs 59,000 crore in the first half of fiscal 2020, compared with Rs 42,700 crore a year ago.
"Structural shifts such as favourable demographics, rising propensity to leverage for personal consumption, increase in availability of financing, and reasonable risk-adjusted returns for lenders, will continue to support retail lending," the rating agency's senior director, Krishnan Sitaraman, said.
Credit to MSMEs, which has remained flat so far this fiscal, will receive some fillip from the RBI's recent decision to exempt banks from CRR requirement for incremental credit to this segment, as well as the extension of the one-time restructuring scheme by one year.
Overall growth in credit to MSMEs, however, is expected to remain range bound at around 5-7 per cent, the report said.
Agricultural credit might see some uptick with the government's ambitious lending target of Rs 15 trillion for fiscal 2021, up from Rs 13.5 lakh crore in FY20, it said.