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Bank credit growth at 16.2 %, more than double last year's pace

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Bank credit rose 16.2 percent during the fortnight ended September 9, more than double the pace of 6.7 per cent in the same period last year as corporate demand is picking up and are going back to banks to meet their funding requirements due to tight market rates.

Bank credit rose 16.2 percent to Rs 125.5 lakh crore as of September 9'22 over last year's levels. This is reckoned to be the highest growth in more than eight years and more than double the pace of 6. per cent growth in September'21.

Analysts attribute this to a surge in corporate demand besides a steady growth in retail and MSME loans. "Notably, with aggregate capacity utilization levels at 75% (as of June 2022) and a tightening global monetary landscape, banks are facing renewed demand from corporates—largely for increased working capital requirements, which until recently were met by overseas borrowing or the corporate bond market" said Tanvee Gupta Jain, UBS India Economist. "This was also supported by banks’ improved willingness to lend".

India Ratings has revised its banking credit growth estimate for FY'23 to 13.0% yoy from 10.0%. The factors driving this upward revisions include the following the rise in working capital demand even as capex is likely to see some moderation, given the build-up of macro uncertainties. Moreover with the adverse interest rate cycle, there is a visible shift from capital markets to the banking system for longer term funding. Also, the revival in credit demand from the corporate segment is better than expected, especially in sectors such as infrastructure and chemicals, the ratings firm said.

From the lenders' perspective, assets quality concerns are waning. Asset quality metrics continue to improve, with the gross non-performing assets (GNPA) ratio for the banking system declining to 6.1% in FY'22 from the peak of 11.2% in FY'18, according to India Ratings.

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