Lenders pin hopes on pent-up loan demand
While a lot depends on whether a third Covid-19 wave hits India and how it pans out, lenders are near certain a credit pickup is on the cards. However, demand for corporate loans is not expected to gain traction anytime soon—rather, it is retail loans that will be at the forefront of credit growth, they say.
Bankers anticipate stronger credit growth in the coming quarters, hoping that pent-up demand built up over months of pandemic-induced lockdowns will drive spending on goods and services.
Their projections also ride on vaccine optimism although, to be sure, less than 5% of Indians have received both the jabs against Covid till date—a far cry from the ‘critical mass’ that bankers hope to see.
While a lot depends on whether a third wave hits India and how it pans out, lenders are near certain a credit pickup is on the cards. However, demand for corporate loans is not expected to gain traction anytime soon—rather, it is retail loans that will be at the forefront of credit growth, they say. In FY21, loans to industries were little changed, growing 0.4% to reach ₹29.2 lakh crore, whereas retail loans grew 10.2% to ₹28.1 lakh crore, showed data from the Reserve Bank of India (RBI).
“Our internal assessment is that if the third wave is not as bad as the second, credit growth will pick up. Consumers have been cooped up at home for the past few months, and we believe once the curbs are completely lifted, and the vaccination reaches a critical mass, they would look to spend and take loans to fulfil aspirations,” said an executive director at a state-run bank.
India has so far inoculated 55.2 million individuals with two doses of Covid vaccines. The number of shots reached a daily high of 9 million on June 21, but this has now plateaued. On June 26, the country administered 6.4 million doses, showed data.
Bankers said they have been able to weather the first and even the second Covid wave with support from the central bank and the government. FY22, they said, will not be much different. For instance, in FY21, State Bank of India’s domestic credit book expanded 5.7% to ₹21.8 lakh crore. This was higher than the 4.9% non-food credit growth witnessed by the banking industry in the same period.
“The bank adjusted to the challenges posed by covid and is better positioned to tackle any subsequent wave. I am cautiously optimistic that the performance trajectory of FY21 will continue in FY22 as well,” SBI chairman Dinesh Khara said.
While there is growing optimism about the future, things do not look rosy. Outstanding bank loans shrank in the first two months of the fiscal as credit push took a back-seat.
Total non-food credit declined 0.8% between April 9 and June 4 to ₹107.5 lakh crore, RBI data showed. In absolute terms, this translates to a contraction of ₹86,000 crore. To be sure, outstanding non-food credit shrank to a greater extent last year, owing to the initial wave of the pandemic. Between April 10 and June 5 2020, it had declined by ₹1.16 lakh crore. Economists have said that though the human cost has been substantial, the economic impact has been better contained.