In a climate of economic expansion, increased capital expenditure, and the implementation of the Production-Linked Incentive (PLI) scheme, the outlook for bank credit offtake remains promising. The surge in demand for retail credit and personal loans, coupled with the positive impact of these factors, is projected to drive credit growth in India.
Credit growth for the fiscal year 2023-24 is estimated to range between 13.0% and 13.5%, excluding the influence of the merger of HDFC with HDFC Bank, according to a recent analysis by CareEdge. However, challenges such as elevated interest rates and global uncertainties may exert potential pressure on credit expansion.
Credit offtake
The momentum of credit offtake remains robust, displaying a year-on-year increase of 19.7% to reach Rs 148.0 lakh crore for the fortnight ending July 28, 2023. This substantial surge is primarily attributed to the impact of HDFC’s merger with HDFC Bank, along with the steady growth in personal loans and non-banking financial companies (NBFCs). However, when excluding the merger impact, credit growth registered a slightly lower rate of 14.7% year-on-year for the same fortnight.
Concurrently, deposits have also witnessed healthy growth, experiencing a year-on-year increase of 12.9% for the same fortnight, inclusive of the merger effect. On a pro forma basis, deposits grew by 12.3% year-on-year during the corresponding period. This growth, although substantial, hasn’t paralleled the pace of credit expansion due to the larger share of liabilities stemming from HDFC’s borrowings rather than deposits.
Deposit growth
Furthermore, deposit growth is anticipated to gather momentum in the upcoming fiscal year, as banks strive to fortify their liability base to ensure that credit expansion isn’t constrained.
The Short-term Weighted Average Call Rate (WACR) as of August 4, 2023, stood at 6.39%, in contrast to 4.72% recorded on August 5, 2022. Throughout the month, the banking system maintained liquidity in surplus, averaging an excess of approximately Rs 1.7 lakh crore in July. In a bid to manage liquidity, the introduction of an incremental cash reserve ratio for scheduled commercial banks (SCBs) was implemented. This new measure is expected to absorb liquidity worth Rs. 1 lakh crore from the system, potentially influencing short-term rates.
CD ratio
Furthermore, the Credit-Deposit (CD) ratio has remained consistently above 75% since December 2022. The most recent data indicates a minor decline of 40 basis points (bps) compared to the previous fortnight, settling at 77.2% for the fortnight ending July 28, 2023. However, the year-on-year growth has witnessed an approximate 440 bps increase, albeit with the impact of the HDFC merger.
Concurrently, the credit-to-total asset ratio experienced a marginal reduction of 10 bps compared to the prior fortnight, reaching 77.2% for the fortnight ending July 28, 2023. This figure, however, reflects an impressive year-on-year growth of approximately 440 bps. Additionally, government investments totalled 58.4 lakh crore as of July 28, 2023, displaying a year-on-year growth of 16.5% and a sequential growth of 0.4%.
