As the GDP growth has plunged to an over six-year low of 4.5 per cent in the second quarter of the ongoing fiscal, credit expansion may plummet to a six-decade low of 6.5-7 per cent in FY20, says a report.
Credit growth was a high 13.3 per cent in the previous fiscal, says rating agency Icra in a report.
If the forecast turns out to be true, this will be the lowest credit growth in as many as 58 years — credit growth stood at a low 5.4
It can be noted that GDP growth plunged to a 25-quarter low of 4.5 per cent in the second quarter and to 5 per cent in the first quarter and nobody is forecasting better numbers going ahead.
Even the RBI has massively slashed its growth forecast to a low 5 per cent for the year — down by a massive 240
Many international agencies have also revised downward their economic growth forecast for FY20. Moody’s has lowered its GDP growth to 4.9 per cent from 5.8 per cent, while Japanese brokerage Nomura has pegged it at lowest 4.6
Till end-November, according to RBI data, credit growth has been
The agency attributed the likely weak growth in advances that will be on account of muted incremental credit growth so far in this fiscal.
“Factors such as muted economic growth, lower working capital requirements as well as risk-aversion among lenders will compress the incremental credit growth in FY20,” report said, adding there was little demand for funds from three out of four key sectors — agriculture, industry, services and retail loans.
Till December 6, the incremental credit growth has risen by just Rs 80,000 crore to Rs 98.1
The report says even if incremental credit increases to Rs 6.5-7 lakh crore in the second half of the year, the incremental net bank loan will decline by 40-45 per cent to Rs 6.3-6.8 trillion during this fiscal.
According to the agency, the year-on-year credit growth of 37 banks stood at 7.9 per cent as of September.
It further says private banks may also face challenges in deposit
Incremental bank credit has increased by just Rs 80,000 crore during FY2020 till December 6, in contrast to the rise of Rs 5.4 lakh crore and Rs 1.7 lakh crore in FY2019 and FY2018 (till December), respectively.
Explaining the rationale behind
The recent data on bank credit from the Reserve Bank reveals contraction in incremental credit outstanding to the services as well as industrial segments, offset the entire growth in credit to retail segment during the first seven months, the report says.
The report also warns of banks facing challenges in deposit mobilization, especially for private sector banks.
But on the positive side, incremental deposit accretion of the banking system at Rs 5.3 lakh crore remained higher than credit growth till December 6. Overall