Deposits to remain key challenge

The year-on-year (Y-o-Y) growth in bank credit is expected to decelerate sharply to 6.5-7.0% during FY2020 from FY2019’s 13.3%, following limited incremental credit growth during FY2020 till date, says rating agency ICRA Ltd on 26 Dec 2019.

The incremental bank credit has increased by only Rs.0.80 trillion during FY2020 till 6 December 2019 to Rs.98.1 trillion, in contrast to the rise of Rs.5.4 trillion and Rs.1.7 trillion during previous corresponding periods of FY2019 and FY2018, respectively.

Even in a high growth scenario, whereby incremental credit rises to Rs.6.5-7.0 trillion during H2 FY2020 from Rs.5.7 trillion during H2 FY2018 and Rs.7.2 trillion during H2 FY2019.

ICRA Ratings projects a 40-45% Y-o-Y decline in incremental net bank credit to Rs.6.3-6.8 trillion during FY2020 from Rs.11.9 trillion during FY2019, while somewhat comparable to Rs.6.5 trillion in FY2018.

This will translate to a considerable deceleration in Y-o-Y bank credit growth to 6.5-7.0% during FY2020 from 13.3% during FY2019 and 10.5% during FY2018.

A shift of large borrowers such as non-banking financial companies (NBFCs) and housing finance companies (HFCs) to the banking system for their funding requirements, had boosted bank credit growth in FY2019.

However, factors such as muted economic growth, lower working capital requirements, as well as risk aversion among lenders, have compressed the incremental credit growth in FY2020. fiinews.com