Loan demand back to pre-COVID levels

“Indian banks are ready to shift into a growth phase, just in time to meet rising demand as the country’s economy recovers,” said Nikita Anand, associate director for credit risk at S&P Global Ratings. “Faster loan growth will be bolstered by improving asset quality and a normalization in credit costs over the next 12-18 months.”

Overall bank credit growth accelerated to 9.2% year over year in December, RBI data showed. That compared with 5.2% growth in March 2021. HDFC Bank Ltd., India’s largest private sector bank, said its total advances as of Dec. 31, 2021, increased 16.5% year over year.

In a separate note, Mumbai based research firm Quanteco Research has estimated overall credit impulse to have jumped sharply to a 10-quarter high of 5.0 in Q3 FY22 from 3.1 in Q2 FY22.” This bodes well for increase in the investment ratio, which stood at 32.0% in Q2 FY22, similar to its pre pandemic level of 31.9% in H2 FY20″ the report said. “Notwithstanding the temporary mild risk from Omicron, hurdles for a further pick-up in bank credit are easing”.

Better balance sheets and an appetite for small and medium-sized enterprise lending can raise overall bank credit growth to more than 10% in 2022 and to between 12% and 13% thereafter, S&P said quoting a recent Jefferies report. Bank credit growth improved steadily in 2021 thanks to stronger retail demand, economic recovery and an inflationary push, S&P said quoting Jefferies.

The World Bank expects India’s economy to grow 8.3% for the current financial year ending in March, and 8.7% next year, according to the Global Economic Prospects report released earlier this month. In contrast, global economic growth is likely to slow amid the surge of cases of the omicron variant of COVID-19, and higher inflation, debt and income equalities, the World Bank said. India’s GDP grew 8.4% year over year in the July-to-September quarter, reversing a 7.4% contraction from a year ago, according to government data released in November.