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Synopsis

• Credit offtake continued to witness elevated growth at 16.2% year on year (y-o-y) to reach Rs. 143.9 lakh crore for the fortnight ending June 30, 2023, driven by personal loans, NBFCs and agriculture & allied activities. The outlook for bank credit offtake continued to be positive due to economic expansion, rise in capital expenditure, implementation of the Production Linked Incentive (PLI) scheme, and retail credit push. However, it is still expected to moderate from 15.0% in FY23 to 13.0-13.5% in FY24.

• Deposits witnessed a healthy growth at 13.0% y-o-y, the highest over the last six years, in the current fortnight partly supported by RBI's withdrawal of Rs. 2,000 denominated currency notes and higher interest rates on deposits.

• The spread between credit and deposits growth dropped to 326 basis points (bps) in the fortnight as against 875 bps (largest) in November 2022. This can be attributed to a rise in deposits in the last two-three fortnights. Short-term Weighted Average Call Rate (WACR) stood at 5.94% as of June 30, 2023, as compared with 4.3% as of July 31, 2022. This increase can be attributed to elevated policy rates. Although, WACR has reduced from 6.69% as of May 04, 2023, due to surplus liquidity available in the banking system.

Figure 1: Trend in Deposit Growth (y-o-y, %) – Deposit Growth Highest in the Last Six Years

Figure 2: Bank Credit Growth Trend (y-o-y %, Rs. Lakh crore)

• Credit offtake rose by 16.2% y-o-y for the fortnight ended June 30, 2023, compared to 14.5% from the same period in the last year. Sequentially, it improved by 2.6% over the previous fortnight (reported June 16, 2023) In absolute terms, credit offtake expanded by Rs.20.1 lakh crore from July 01, 2022, vs Rs.15.6 lakh crore in the same period last year.

• The outlook for bank credit offtake continued to be positive due to the economic expansion, rise in capital expenditure, implementation of the PLI scheme, and retail credit push. This growth would be coming off a high base in FY23 which would impinge marginally on the growth rate. CareEdge forecast GDP growth at 6.5% in FY24 (revised upwards from 6.1% earlier) from 7.2% in FY23. Hence, based on GDP forecasts and sectoral credit growth expectations, CareEdge estimates the credit growth to be in the range of 13.0%-13.5% for FY24 excluding the impact of the merger of HDFC with HDFC Bank. If we include the merger, the growth is likely to be higher by around 3.0%. The personal loan segment is expected to continue doing well compared with the industry and service segments in FY24. The medium-term prospects look promising with diminished corporate stress and a substantial buffer for provisions. However, elevated interest rates and global uncertainties could impact credit growth in India. Further ebbing inflation could also reduce the working capital demand.

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