H2FY22 lending boost: Loan growth rises to over 6% in February

The rate of growth in non-food credit on a year-to-date (YTD) basis rose to 6.14% in February as banks benefited from better loan offtake during the second half of the year, typically a busy season for lenders. Through much of FY22, YTD loan growth has been muted, remaining in the negative territory through the first six months, with a blip seen in December, when it jumped to 6.5%.

As on February 25, the value of outstanding bank loans stood at Rs 115.59 trillion, up 8.03% year-on-year (y-o-y), according to data released by the Reserve Bank of India (RBI). Retail credit demand, coupled with support extended under the emergency credit line guarantee scheme (ECLGS), have offered the most support to bank loan growth through the year, as per sector analysts and sectoral data from the RBI.

Analysts viewed the sustained improving trend in credit growth as a positive. Jefferies said in a report dated March 15 that even though the growth rate of 8% in February seems slower than the 9% print in December 2021, that reading was boosted by seasonal factors. “The growth improvement is encouraging vs 6-7% growth in early CY21. Retail credit continued to be good while corporate credit growth has also picked up. Bond issuances doubled sequentially in February 2022,” the report said.

To be sure, credit offtake has also received a hand from an improvement in overall business activity. Broader macroeconomic indicators suggest a brighter year-end outlook for banks. The Nomura India Business Resumption Index rose to a record high of 122.8 for the week ended March 13 from an upwardly revised 121.0 in the previous week, at 23 percentage points above pre-pandemic levels. Business resumption has settled at 22-23 percentage points above pre-pandemic levels since end-February, Nomura said.

However, Russia’s war in Ukraine could pose fresh challenges for growth, especially in the auto loans segment. The issue of shortage of semiconductor chips, which impacted vehicle availability through much of 2021, could resurface, say some experts. Emkay Global Financial Services said in a recent note, “As per bankers, vehicle availability was improving, but the recent Russia-Ukraine conflict has once again raised concerns around supplies of semiconductors. As a result, few financiers have ventured into used-car financing to garner volume and better yields.”

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