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Synopsis

Credit offtake continued to show robust growth, increasing by 20.2% year on year (y-o-y) to reach Rs. 147.6 lakh crore for the fortnight ending July 14, 2023. This surge was primarily driven by the impact of HDFC’s merger with HDFC Bank, which took effect in July 2023, as well as growth in personal loans and NBFCs. However, if we exclude the impact of the merger, credit offtake grew at a slightly lower rate of 14.4% y-o-y in the same fortnight (as reported on July 14, 2023). Looking ahead, the outlook for bank credit offtake remains positive, with a projected growth of 13-3.5% for FY24, excluding the merger's impact. Including the merger, the growth is likely to be higher by approximately 3%. Deposits also witnessed healthy growth, increasing by 13.2% y-o-y for the fortnight (including the merger impact). On a pro forma basis, deposits grew by 12.3% yo-y during the same period. The Short-term Weighted Average Call Rate (WACR) stood at 6.48% as of July 14, 2023, compared to 4.46% on July 15, 2022. This increase can be attributed to the elevated policy rates. However, it is worth noting that WACR has reduced from 6.69% as of May 04, 2023, and reached below 6.0% during Q1FY24. The net liquidity position stood at Rs. 1.92 lakh crore as of July 14, 2023, compared to Rs. 1.25 Lakh crore as of June 30, 2023, and Rs. 1.81 Lakh crore as of July 15, 2022.

Figure 1: Summary Statistics

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

• Credit offtake increased by 20.2% year on year (y-o-y) for the fortnight ending on July 14, 2023. Additionally, it showed a sequential improvement of 2.6% over the previous fortnight, as reported on June 30, 2023. It is important to note that the growth figures are not directly comparable, as the data reported by the RBI as of July 14, 2023, includes the impact of the merger of HDFC with HDFC Bank. In absolute terms, credit offtake expanded by Rs. 24.8 lakh crore to reach Rs. 147.6 lakh crore as of July 14, 2023, compared to July 15, 2022. Excluding the impact of the merger, the growth stood at 14.4% y-o-y for the fortnight, compared to 14.0% over the same period a year ago. This growth was primarily driven by continued demand for personal loans and NBFCs.

• The outlook for bank credit offtake remains positive, supported by factors such as economic expansion, increased capital expenditure, the implementation of the PLI scheme, and a push for retail credit. It is important to consider that this growth would be coming off a high base in FY23, which might have a marginal impact on the growth rate. CareEdge has forecasted GDP growth at 6.5% in FY24 (revised upwards from 6.1% earlier) compared to 7.2% in FY23. Based on GDP forecasts and sectoral credit growth expectations, CareEdge estimates that credit growth is likely to be in the range of 13.0%-13.5% for FY24, excluding the impact of the merger of HDFC with HDFC Bank. If the merger is included, the growth rate is expected to be higher by approximately 3.0%. The personal loan segment is expected to perform well compared to the industry and service segments in FY24. However, elevated interest rates and global uncertainties could potentially impact credit growth in India. Moreover, a reduction in inflation could also lead to decreased working capital demand.

Figure 3: Bank Deposit Growth (y-o-y %)

• Considering the impact of the merger, deposits rose at 13.2% y-o-y the fortnight (reported July 14, 2023). However, it declined by 0.7% sequentially. Meanwhile, in absolute terms, bank deposits expanded by Rs. 22.0 lakh crore and reached Rs. 190.3 lakh crore as of July 14, 2023, from July 15, 2022. Without considering the merger, deposits rose by 12.3% y-o-y. However, it dropped by 1.5% from the previous immediate fortnight (reported June 14, 2023).

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