Private banks hope for a recovery in credit in FY23 after boosting Q1

Private banks are optimistic about a recovery in credit in FY23, after subdued growth in the past two years. In the first quarter of FY23, most private banks reported an increase in demand for wholesale and retail loans.

As elevated inflationary pressures and macroeconomic concerns continue to pose a challenge to India’s GDP growth, bankers are optimistic about continued business growth as the economy recovers and confidence rises. of consumers is improving.

Economic downturn

Even during this period, India remains one of the fastest growing major economies in the world, ICICI Bank chief executive Sandeep Batra said on Saturday. “We’re still growing, so don’t look at Western benchmarks just yet,” he said, addressing concerns of an economic slowdown.

Credit growth has been hit over the past two fiscal years as the country faces multiple waves of Covid-19, which have disrupted lives, livelihoods and business activities. In the first quarter of FY23, most private banks recorded credit growth of 12-14%, with large banks such as ICICI Bank and Kotak Bank recording loan growth of 21% and 29%, respectively.

Looking to the next three quarters, these banks have opted for a recovery in lending to the large and medium-sized business segment, where demand has so far been largely limited to working capital loans. In the first quarter of FY23, additional corporate demand was also driven by their exit from capital markets amid rising rates.

Despite pockets and higher stress cases, growth is also strong in credit cards and personal lending, where mortgages, autos and personal loans are expected to drive growth. Most banks also expect MSME lending to pick up in the second half of the fiscal year as the sector emerges from the pandemic crisis period.

Additionally, an improvement in asset quality at most major banks has reduced provisioning requirements and credit costs, freeing up capital to deploy in high-growth segments.

The optimism seems to have been welcomed by the market, as evidenced by the surge in private bank stocks following their Q1FY23 results. Over the past week – when most private banks reported their first quarter results – the Nifty Bank Index rose 5.9%, while the Nifty Private Bank Index rose 6.6% to Friday’s close.

Even then, uncertainty prevails amid fears of lower consumption and higher interest rates due to inflationary concerns, as higher lending rates could affect banks’ margins as well as the credit application. In addition, rising rates would lead to an increase in the cost of funds for banks and would be mitigated by negative growth in their cash portfolio.

Analysts and industry experts, however, remain convinced that despite these challenges, credit growth will trend upwards in the coming quarters.

Additional drawdowns since March 2022 have been positive for banks in all of the reporting fortnights in T1FY23, ratings agency ICRA said in a recent report. “While the tightening of rates and the resulting slowdown could dampen demand for credit drawdown for banks in the second half of the year, credit growth is expected to remain better than the 9.7% seen for l fiscal year 22,” he said.

Published on

July 24, 2022

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