New Delhi: Bank credit grew 9.6% YoY (YOY) and increased 402bps YoY for the fortnight ending March 25, from 5.6% a year ago ( the fortnight ending March 26, 2021) through retail loans, coupled with an increase in working capital loans due to rising inflation and large corporates raising capital from the banking system instead of the bond market, according to a CareEdge report on the country’s financial system.

According to the report, sequentially, credit growth improved by 1.5%. In absolute terms, outstanding credit stood at 118.9 trillion rupees as of March 25, increasing by 10.43 trillion rupees over the last twelve months.

Credit drawdown of 9.6% year-over-year for the fortnight ended March 25 is much better than 5.3-6.7% in first H1FY22, CareEdge said.

Lower credit growth in the first half of FY22 was due to covid-19 restrictions. However, in H2FY22, the economy saw an uptick in activity as restrictions were lifted.

Retail credit remained the main driver of total credit utilization. In addition, corporate credit growth has also picked up due to large corporations raising funds from the banking system instead of the bond market, with banks offering more attractive rates. Additionally, working capital requirements have also increased due to rising inflation, according to the report.

With the 2022-2023 Union budget focused on expanding capital expenditure and infrastructure, the drawdown of credits could increase from the industry, he added.

Personal segment loans outstanding increased by 12.3% year-on-year in February 2022 due to growth in other personal, home and auto loans, driven by low interest rates and higher discounts.

In addition, outstanding loans in the industry segment recorded a growth of 6.5% year-on-year in February 2022 compared to a marginal growth of 1.0% a year ago mainly due to the robust growth of micro and small businesses. (19.9%) and medium (71.4%) business segment driven by the ECLGS and reclassification.

Gross bank credit increased to 9.6% year-on-year in March 2022. After experiencing modest credit growth in recent years, the outlook for bank credit growth is expected to remain positive due to economic expansion, increase in public and private investment, extension of ECLGS support, commodity price inflation and surge in retail credit.

CareEdge said the medium-term outlook looked promising with decreasing corporate stress and increasing provisioning levels at banks. The CPI is also up, which should help credit growth.

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