Credit growth in India touched a fresh high at 15.3 per cent YoY as of mid of August. Deposits too registered a YoY growth at 8.8 per cent.
The majority growth has come from the retail loans segment —18 per cent YoY growth. Retail loans constitute 31 per cent of the total loans. The systemic loan growth remained robust and hit a fresh high at 15.3 per cent YoY for the fortnight ending August (verses 14.5 per cent in the preceding fortnight).
As per a recent report by Motilal Oswal, the last time systemic loan grew by 15.3 per cent YoY was in November 2013. The outstanding credit base stood at Rs 124.3 trillion, and it is expected that systemic credit growth will grow by 12 per cent YoY in FY 2023.
As per the report, the retail loan growth continued to remain strong (up 18.1 per cent YoY), led by YoY growth in credit cards, auto and home loans. The mix of retail loans increased to 31.3 per cent of total loans from 29.8 per cent in FY21. The report also observes that the industry credit growth is recovering gradually (up 9.5 per cent YoY in June 22 verses 8.7 per cent in May 2022). Within the industry, credit to medium industries registered a robust 47.6 per cent YoY growth, while credit to micro and small industries accelerated by 30 per cent. Credit to large industries grew 3.3 per cent YoY, and is seeing a healthy recovery.
The report observes that credit growth in the services sector stood at 12.8 per cent YoY in June, led by a healthy growth in NBFCs (up 21.1 per cent YoY). Credit to the agriculture sector picked up, rising 13 per cent YoY in June verses 11.8 per cent YoY in May. Interestingly, the deposit growth remained modest at 8.8 per cent YoY for the fortnight (up 2.9 per cent in FY23 to date). The outstanding deposit base stood at Rs169.5 trillion. Within deposits, banks have seen mixed trends in garnering retail deposits, resulting in an uptick in CASA (Current Account Saving Account) ratio by small and mid-size banks, while large banks saw a moderation. In the ongoing rising rate cycle, deposits are expected to gain momentum.
As per the report, the banking system in India is seeing a healthy recovery in loan growth, led by a revival in the corporate segment, while growth in retail and SME segments remain robust. Deposit growth remains modest, but is expected to see some uptick in the current rising interest rate regime. While any material change in the demand environment needs to be monitored, given the challenging macro-environment, it is expected that banks with higher CASA and floating rate loans are likely to be better placed in a rising rate environment.