Bank credit will increase by 10 pc in FY22 thanks to a faster expansion of GDP, political measures: Crisil

“A limited asset reconstruction company and an asset management company would be created to consolidate and take over the existing stressed debt,” she said in the budget speech.

Credit growth in the banking system will almost double to 10% in 2021-2022 thanks to the economic recovery and political interventions, rating agency Crisil said on Thursday.

The amount of gross non-performing assets (gross non-performing assets) will increase to 10.5-11% by the end of 2021-2022, about a percentage point lower than originally projected, the agency said.

GDP growth is expected to stand at 11% for the new fiscal year, after a 7.7% contraction in 2020-2021, impacted by the pandemic, he said.

The second and third waves of COVID-19 infections pose a risk to the economic recovery, but it may not lead to widespread lockdowns and a faster vaccination campaign will help, too, the agency said.

From the perspective of banks’ credit growth, the agency said the expansion will accelerate by 4 to 5 percentage points to reach 9 to 10 percent in 2021-2022.

The faster credit growth will be driven by retail lending, which is expected to increase in mid-teens, while business loans, which declined in 2020-21, are also expected to jump 5-6%, did he declare.

The agency said business loans, which account for almost half of overall bank lending, were moderate in 2020-2021 due to low capital spending (capex) and also impacted demand, which which reduced the need for working capital. With the economy recovering, government and RBI stimulus packages, and the budget’s focus on infrastructure, the same is expected to rise slightly, he said.

In 2020-2021, the emergency credit guarantee loan program has been a key factor that has boosted overall credit growth for the banking system, he said. Bank lending showed a “V” recovery in the second half of the year, the rating agency added.

From an asset quality perspective, corporate lending will show more resilience, and it will be lending to the retail and micro, small and medium-sized business segment that will push banks’ overall NPA up to 10.5. -11%, he said.

The agency said, however, that NPAs would have been one percentage point higher without policy interventions such as a moratorium, one-time debt restructuring and the continued pending bankruptcy proceedings.

In the non-bank space, the total assets under management (AUM) is expected to grow at a slower rate of 5% in 2021-2022 and has not yet reached pre-pandemic levels, the said. agency.

The biggest inhibiting factor for the non-bank financial corporations (NBFC) sector will be the sources of funding to support the liabilities, he said. Programs such as targeted long-term repo operations have helped the sector, he added.

Stressed NBFC assets reached as high as Rs 1.8 lakh crore in March 2021, with segments such as real estate finance, unsecured loans and small business finance being the most stressed, he said.

NBFCs focused on gold lending and mortgages will be the least affected by the setbacks, he said.

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