Gross credit offtake may see a 200-300 bps rise in FY21, says CRISIL

The slowdown in credit offtake that hit the banking sector adversely in the current financial year might be showing signs of bottoming out. 

Rating agency CRISIL estimates that the gross credit offtake may see a 200-300 basis points rise in 2020-21 (FY21), driven by a revival in economic activity, continuous demand for retail credit securitisation. Credit growth for 2019-20 (FY20) is hovering around 6 per cent, the lowest in many years. In 2018-19, growth was 11 per cent and in 2017-18, it was 9 per cent. The agency also expects some growth momentum in the fourth quarter, after three subdued quarters.

The uptick in growth will be led by private sector banks as growth in their credit offtake is estimated to be around 15 per cent. This implies that they will gain market share from their public sector counterparts, supported by strong capital position and ability to raise capital. “Their share is expected to rise around 400 basis points (bps) by March 31, 2021, over March 31, 2019,” said CRISIL.

Furthermore, Reserve Bank of India’s (RBI’s) recent move to introduce long-term repo operations to reduce cost of funds for banks will boost lending by banks, as they will be exempted from maintaining cash reserve ratio for incremental lending to the retail and micro, small and medium enterprises (MSMEs) segments. This will enable banks to extend credit at a cheaper rate as they will be borrowing at the repo rate and the deposit rates will not have to be tampered with. According to CRISIL, “Incremental net domestic credit this fiscal up to December 2019 is just a fifth of what it was a year ago. Lending to the retail segment and non-banking financial companies (NBFCs) showed good growth, while credit to corporates (ex-NBFCs) and MSME declined”. 

Retail credit growth is estimated to grow around 16 per cent in FY21, driven by sustained demand in the unsecured loans segment and buyouts by banks of the non-bank retail portfolios through direct assignment route. Securitisation transactions through the direct assignment route have surged almost 40 per cent to Rs 59,000 crore in the first half of FY20, compared to Rs 42,700 crore a year ago. Meanwhile, bank loans to corporate houses, excluding bank loans to NBFCs, is expected to remain subdued in FY20, but will see a slight pick-up from thereon. “Overall growth in this segment, however, is expected to remain low at 2-3 per cent in FY21, causing its share in total bank credit to fall 300 bps to 48 per cent between March 2019 and March 2021,” the rating agency said. 

The drag in corporate lending will be on account of low capacity utilisation in the economy that will result in keeping private investments muted in the near to medium term.