Credit growth will remain subdued at 5%-6% in FY17, ICRA says

COIMBATORE: Credit growth will remain subdued at 5%-6% at the end of FY2017 (2016-17), on the back of muted credit demand and continued traction in finer priced debt capital markets, ratings agency ICRA has said.

Deposit growth is likely to ease further to 12% by end-March 2017, with banks cutting deposit rates and easing cash availability in the system, from 14.7% as on January 6, it said.

“Credit growth is likely to remain muted as demand is yet to display a revival and the debt markets continue to offer more attractive pricing,” said Karthik Srinivasan, senior vice-president and group head-financial sector ratings, ICRA.

“Deposit growth is likely to drop from the current levels,” he said.

“The improvement in cash availability would enable continued CASA (current account savings account) withdrawals over the rest of this quarter. Moreover, banks have reduced their deposit rates, amidst low credit pick-up and the surge in systemic liquidity,” Srinivasan said.

Deposits of the banking system surged sharply after the note ban from Rs 101.4 trillion (101.4 lakh crore) as on September 30 to Rs 105.2 trillion on December 23 and further to Rs 105.8 trillion on January 6. Bank deposit growth increased from 11.3% on a year-on-year (y-o-y) basis on September 30 to 15.2% on December 23, before easing to 14.7% on January 6 on the back of the sharp uptick in deposits.

Aggregate non-food bank credit eased from Rs 74.4 trillion (74.4 lakh crore) as on September 30 to Rs 72.4 trillion on December 23, before rising modestly to Rs 73.1 trillion on January 6. Non-food bank credit growth plummeted on a y-o-y basis after the note ban, from 10.6% on September 30 to 5.3% on December 23, and further to 5.1% on January 6.

Despite the recent cuts in lending rates announced by banks, the rates offered by the debt capital markets remain lower than bank rates, ICRA said. Notwithstanding the continued growth in the amount outstanding of bonds and commercial paper, the slowdown in the bank credit pulled down the aggregate lending growth from 12.7% in December 2015 to 8.3% y-o-y in December 2016

source”cnbc”