Negative projection of bank credit growth in FY2020

A report by ICRA has projected that bank credit growth may decelerate to 6.5-7% in FY2020 as compared to 13.3% in FY19 – the lowest rate of bank credit growth in 58 years. According to ICRA’s assessment of 37 scheduled commercial banks, the YoY credit growth was 7.9 per cent as of September 2019. While credit growth in public sector banks was merely 4.4 per cent, private banks registered 15 per cent growth in the same period

A major reason for this decline in credit growth is low capital requirement by corporates and risk aversion by banks. In FY19, major portion of bank credit had gone to NBFCs and HFCs which has declined in the current FY with the ongoing NBFC crisis.

Highlighting the grim economic situation, the credit rating agency report says even if the economy performs exceptionally well and sees credit growth to Rs 6.5-7 lakh crore in the second half, the incremental bank credit is projected to see a 40-45 per cent YoY decline to Rs 6.3-6.8 lakh crore during FY2020 from Rs 11.9 lakh crore in FY19. As of Dec’19, incremental bank credit has grown by just Rs 80,000 crores, as compared to growth of Rs 5.4 lakh crores and Rs 1.7 lakh crores respectively in FY19 and FY18.

While credit growth has slowed down, deposits into banks has continued to grow. The incremental deposit accretion was Rs 5.3 trillion as of December 6, 2019 compared to Rs 4.6 trillion in the same period of FY19. The overall deposit base increased to Rs 131.1 trillion as of December 6, 2019, a Y-o-Y growth rate of 10.3 per cent, the rating agency said. positive growth in deposit accretion has been attributed to the muted increase in currency in circulation, lower increase in asset under management of debt mutual funds as well as higher liquidity maintained by various corporate entities.

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