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Banks to see strong recovery in loan demand this fiscal

Banks to see strong recovery in loan demand this fiscal
Indian banks are to witness a strong recovery in loan demand this fiscal along with higher net interest margin and improved asset quality.

Banking

Banks to see strong recovery in loan demand this fiscal

Indian banks are to witness a strong recovery in loan demand this fiscal along with higher net interest margin and improved asset quality as economy recovers, says ratings agency Standard and Poor’s.




Nikita Anand, associate director for credit risk at S&P Global Ratings, believes Indian banks are ready to shift into a growth phase just in time to meet rising demand as the country’s economy recovers. “Faster loan growth will be bolstered by improving asset quality and a normalization in credit costs over the next 12-18 months.”

Moreover, RBI data shows that overall bank credit growth accelerated to 9.2% year-over-year in December, plus there was a 5.2% growth in March 2021. India’s largest private sector bank – HDFC Bank Ltd said its total advances, as of Dec 31 2021, increased 16.5% year-over-year.

Quanteco Research, a Mumbai-based research firm, estimates overall credit impulse to have spiked sharply to a 10-quarter high of 5.0 in Q3 FY22 from 3.1 in Q2 FY22. “This bodes well for increase in the investment ratio, which stood at 32.0% in Q2 FY22, similar to its pre-pandemic level of 31.9% in H2 FY20,” the report said. “Notwithstanding the temporary mild risk from Omicron, hurdles for a further pick-up in bank credit are easing.”

Citing the Jefferies report, S&P said better balance sheets and an appetite for small and medium-sized enterprise (SME) lending  can raise overall bank credit growth to more than 10% in 2022 and to between 12% and 13% thereafter. It added that bank credit growth improved steadily in 2021, which was driven by stronger retail demand, economic recovery and an inflationary  push.


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Furthermore, the World Bank expects India’s economy to grow 8.3% for the current financial year – ending in March and 8.7% next year. The global economic growth is likely to slow amid the surge of cases of the Omicron variant of COVID-19, higher inflation, debt and income equalities. It highlighted that India’s GDP grew 8.4% year-over-year in the July to September quarter, reversing a 7.4% contraction from a year ago.


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