Credit growth for banks to pick up gradually: CRISIL

Credit growth to pick up gradually, GNPAs to remain highLed by lower interest rates, bank credit growth rose to 10.9% year-on-year as on January 22, 2016, from 10.4% last year. Since November 2015, credit growth has been improving and we it to touch 11-13% by the end of the current fiscal. Demand for credit would rise gradually from next fiscal, driven by falling differential between the base rates of banks and capital market rates, and healthy retail credit growth. Loan growth is projected at 12-14% for the next fiscal.We expect the Reserve Bank of India to cut the repo rate by another 25 basis points in the next fiscal. Consequently, lending rates will come down because of the new base rate calculation formula.  Bank deposits growth decelerated to 10.3% as on January 22, 2016, from 11.2% in the same period last year as banks needed lesser funds. We expect bank deposit growth to be around 11% by March 2016. Net interest margin is expected to be a tad lower next fiscal on account of lower yields and higher gross non-performing assets (GNPAs), especially for public sector banks (PSBs).The asset quality of public sector banks further deteriorated in Q3 2015-16, following asset quality review (AQR) initiated by the RBI. Aggregate GNPAs moved by 160 bps sequentially to 7.1% of advances and provisioning doubled. Consequently PSBs reported aggregate losses of close to Rs 100 bn in Q3. Even for private sector banks asset quality has deteriorated by 36 bps sequentially to 2.4%.