Credit growth jumps as year-end demand from companies soar

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Bank credit rose to 8.7% compared to last year, with retail loans experiencing the sharpest jump, as per RBI’s latest data.


Why is bank credit rising?

It has been observed that demand for loans shoots up in the last three months of a fiscal year to meet year-end targets. Thus, borrowers are known to use up existing loan limits in this period.


Which loans are in demand?

  • Non-food credit remained in the 5.4% -7.2% range until November last year, but rose sharply to 9.3% by December. The momentum has continued in the following months.
  • Retail loans have continued to grow faster compared to corporate loans, and stood at ₹31.8 trillion, a 12% increase from a year ago as of 28th January.
  • Industrial loans were at ₹30.5 trillion, a growth of 6.4%.


Analysts at CareEdge Ratings believe that the retail loan segment would perform better compared with industry and service segments.  And while mortgages continue to be a key driver of loan growth for banks, personal loans and small business loans have also been inching up.

Overall, there’s limited impact expected on India’s credit growth due to substantial liquidity available here despite ongoing concerns around the impact of the Russia-Ukraine conflict. Furthermore, the third Covid wave wasn’t as severe as the previous ones, but if future variants prove to be otherwise, it could lead to lockdowns and a drop in economic growth, according to the analysts.


Outlook on Credit Growth

Retail credit disbursements are back on the fast lane, according to Emkay Global Financial Services. Disbursements are even better than the pre-pandemic days even though there was a short disruption in January due to third Covid wave and regional holidays.

Banks have also accelerated disbursements to self-employed customers in retail and business loan categories, mostly from largely resilient sectors during the pandemic. This is because better asset quality outcomes have led to lower risk averseness. The report further added that banks could witness strong credit growth without relaxing lending norms since the demand is high.

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