The RBI released data showing the banking system's latest data showed that it was at a multi-year high of 16.2 per cent year-on-year YoY for the fortnight ended September 9, a multi-year high. In November 2013 the last time you touched 16 per cent was in November 2013.
The YoY growth has 5.5 per cent, as the current financial year has extended over Rs 6.5 trillion in loans. Over the same period last year, there was a decline of 0.3 decline YoY. Credit demand is expected to remain robust because of the festive season, though there may be a decline in the system because consumers tend to hold more cash during this time.
In a report from Suresh Ganapathy Param Subramanian of Macquarie Research, Suresh Ganapathy Param Subramanian said, "We expect credit demand to remain high but think the financial system will have to scramble for resources to fund.
Working capital utilisation levels have gone up. Bankers are seeing capex selectively in sectors like steel, cement, and renewables. Capex demand has been weak over the past several years, but we are likely to see early signs of capex-related credit growth in H 2 FY23, according to Macquarie Research.
Credit growth has been largely driven by retail in the past few years, but the corporate segment is seeing signs of a pick-up, according to a report. Private capex is still a few quarters away, and corporate credit is largely driven by working capital requirements.
The retail and segment will be the key growth driver, as corporate credit will pick up slowly. Retail growth will be healthy with home and unsecured loans, according to the report.
Credit growth has remained over 15 per cent for three consecutive fortnights now, indicating a sustained pick-up in demand. For the fortnights ending August 26 and August 12, banking credit grew at 15.5 per cent and 15.3 per cent.
Deposit growth has been trailing by a large margin. Deposits in the banking system grew by 9.5 per cent YoY for the fortnight ended September 9. The credit-deposit gap has widened to 670 basis points and the widening gap has exacerbated concerns that slow deposit growth may emerge as one of the biggest constraints on loan growth in the system.
With the tightening of the system's liquidity, there are going to be aggressive in garnering deposits to support credit demand in the system. This is expected to move the needle on deposit rates, which have not moved in tandem with lending rates. A structural shift away from the loose financial conditions in the economy was signalled by the slipping into deficit mode earlier this week, for the first time in over three years.
Credit growth has risen since April this year despite the RBI adopting a tighter stance. Since May this year, the RBI's six-member Committee has increased the benchmark repo rates by 140 basis points and increased their external benchmark linked loans by the same proportion. The MCLR hike has not been to that extent, which is drawing the industries to borrow more from the industry.