According to a recent report by CRISIL, bank credit growth is set to rise 200-300 bps in the next fiscal while retail lending, supported by securitization which will remain the key driver in the next fiscal. RBI Governor Shaktikanta Das, in the Mint Annual Banking Conclave, also stressed upon combating the moderate 7-7.5% of credit growth.
Crux of the Matter
Das’ Worries Shaktikant Das, in his keynote address at the Mint Annual Banking Conclave, said that the slowing credit growth poses the biggest challenge in front of the banks for the coming fiscal year. Besides, competition from fintech and big-tech companies that are entering into the financial services industry coupled with the weighing issue of Non-Performing Assets (NPAs) will also pose a threat to banks.
Measures to Improve Recent measures taken by the RBI which include securitization would be contributing to the strong growth in lending by private sector banks next year. CRISIL report says, ‘as economic activity gradually picks up pace and demand for retail loans revives, the next fiscal is expected to be better for credit growth.’ The share of retail loans between March 2019 and March 2021 in the total bank credit is expected to rise 400 bps to 28%. To support lending, RBI will exempt banks from the cash reserve ratio (CRR) requirement for incremental credit to certain sectors for up to five years.
Green Hopes for Next Fiscal CRISIL said that lending to the retail segment and NBFC‘s showed good growth while credit to corporates and MSME declined. Overall growth in credit to MSMEs is expected to remain range-bound at 5-7%. Private banks will continue to lead with 15% credit growth. With the government’s lending target of Rs. 15 lakh crores for fiscal 2021, the Agricultural credit is expected to rise. However, this year’s monsoon will be the deciding factor.
Any kind of generalised loan waiver is credit negative and undermines credit culture. It affects the farmers’ capability to access the loan for the next time. Relief to farmers should ideally be targetted and specific to certain situations. It is very important that the amount of write-off is released immediately to banks. – Shaktikant Das on farm loan waiver
The report also said, “prolonged slowdown in bank lending may be bottoming out this fiscal, with gross credit offtake set to rise 8-9 percent on-year in fiscal 2021, a good 200-300 basis points (bps) over the likely growth of 6 percent this fiscal.”
Curiopedia
CRISIL (formerly Credit Rating Information Services of India Limited) is a global analytical company providing ratings, research, and risk and policy advisory services. CRISIL’s majority shareholder is Standard & Poor’s, a division of McGraw Hill Financial and provider of financial market intelligence. As of December 2013, the company has revenue of ₹11,106 million (US$160 million), net income of ₹2,978.2 million (US$42 million) and operating income of ₹3,199.5 million (US$45 million). More Info
Curated Coverage
Live Mint – Bank credit growth may rise 200-300 bps next fiscal: Crisil
Crisil – Bank credit growth set to bottom out, rise 200-300 bps next fiscal
Financial Express – Crisil Report: Credit growth expected to pick up in next fiscal
Live Mint – RBI Governor Shaktikanta Das: Slow credit off-take the biggest challenge for banks
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