Bank credit growth hit a decade high of 16% in the fiscal year, driven by strong retail demand despite rising interest rates and supported by corporate loan demand post HDFC merger, as per RBI data.
Crisil Ratings forecasts a positive credit quality outlook for Indian corporates in the first half of fiscal year 2024-25, with upgrades expected to exceed downgrades. Sectors like infrastructure, hospitality, and education are bolstered by government spending, while export-linked sectors face uncertainties due to subdued global demand. Overall, healthy balance sheets and sustained domestic demand are anticipated to support credit quality.
Crisil Ratings forecasts a positive credit quality outlook for Indian corporates in the first half of fiscal year 2024-25, with upgrades expected to exceed downgrades. Sectors like infrastructure, hospitality, and education are bolstered by government spending, while export-linked sectors face uncertainties due to subdued global demand. Overall, healthy balance sheets and sustained domestic demand are anticipated to support credit quality.
Banks are reducing credit to NBFCs after RBI increased the risk weightage on some of these loans even as credit cards outstanding, which are primarily consumer-driven, continue to grow, RBI data showed. According to data released on Thursday, bank credit to NBFCs fell to a little over Rs 15 lakh crore in Jan 2024 from Rs 15.2 lakh crore in Dec 2023.
Among major industries, growth in credit to 'food processing' and 'textiles' accelerated in January 2024 against the corresponding month of the previous year, while that of 'basic metal & metal products' and 'chemicals and chemical products' decelerated.
The Reserve Bank of India's tightening measures on unsecured loans and credit card outstanding are impacting growth. Unsecured loans are growing at a slower pace of 22.9%, down from 24.3% prior to the central bank's actions. The outstanding unsecured loans amount to 13.33 lakh crore as of December. Credit card outstanding growth has also slowed to 32.6% from 34.2%. Overall retail loans growth has decreased to 17.7% in December. The Reserve Bank of India's actions have had an impact on the lending market.
With stronger balance sheets in the non-financial corporate and banking sectors, growth in investments and credit are poised to increase in this decade, as is already evident in the data for the last three years, according to a report by the Department of Economic Affairs.
If the impact of the merger is excluded, credit grew at a lower rate of 16.1 per cent year-on-year for the fortnight compared to last year's growth of 16.5 per cent, the report said. Deposits also grew 13.1 per cent year-on-year the fortnight (including the merged impact). The report said that deposit growth is expected to improve in 2024.
The Commerce Ministry has directed the Department of Financial Services (DFS) to monitor and ensure credit flow to exporters facing challenges due to increased freight costs in the Red Sea crisis. The move aims to support exporters dealing with elevated shipping expenses as consignments take longer routes, impacting both time and cost. The inter-ministerial meeting, chaired by Commerce Secretary Sunil Barthwal, involved officials from DFS, Shipping, external affairs, and defense ministries.
What needs to be considered is that growth in credit is directly proportional to the growth of the sectors to which credit is being provided for. In case of NBFCs, a big majority of lending goes into sectors like Automobiles, Equipment (construction, mining, healthcare and IT – including office automation), Housing (with affordable housing being an important element), Education and MSMEs.
A latest report by IIFL FinTech revealed that the digital lending market is expected to grow to a whopping USD 515 billion by 2030. In the evolving Indian economy, Non-banking Financial Companies (NBFCs) focusing on the Mid-Market Enterprises (MME) segment are emerging as an alternative route for term financing by offering various benefits.
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