Credit growth likely to remain strong in Q4, says Kotak Bank's Shanti Ekambaram

Bank credit growth has remained strong aided by urban consumption-led recovery and improving rural economy, said Kotak Mahindra Bank's Whole-time Director Shanti Ekambaram to Moneycontrol on Monday, April 10.

"You've heard from banks and NBFCs that credit growth continues to be strong," said Ekambaram. The investment cycle is being led by government spending while private investment is still muted.

Kotak Mahindra Bank's loan book stood at Rs 3.10 lakh crore as of December, up from Rs 2.52 lakh crore in the same period the previous year. Microfinance loans grew the fastest at 121 percent, followed by the credit card outstanding, which grew 85 percent on-year. Unsecured personal loans and business loans surged 69 percent. All these segments gained partly on a low base. Unsecured retail advances, including microfinance, now constitute 9.3 percent of the bank's loan book.

On increasing fixed deposit (FD) rates, Ekambaram said," If you look at what the rate increases have been, while the repo rate has gone up 250 basis points (bps) deposit rates have not gone up that much.

"The deposit accumulation has been pretty strong in terms of FDs and term deposits, and is expected to continue even in FY23-24. I think the current rates are very attractive from a customer’s point of view, and we expect it to continue," she added.

Earlier, Reserve Bank of India’s (RBI) "Quarterly Statistics on Deposits and Credit of SCBs: December 2022" showed that bank credit growth eased to 16.8 percent in the December quarter from 17.2 percent in the preceding one.

"RBI has actually increased, albeit marginally, the GDP growth projection for FY23-24 to 6.5 from 6.4 percent, and estimated that this year (FY22-23) we will grow 7 percent. That's probably the best or among the best in the world from a growth perspective," said Ekambaram.

At about 15 percent growth year-on-year (YoY), India Ratings & Research (Ind-Ra) expects credit growth to remain strong in FY22-23.

"In FY23-24, we estimate a credit growth of 13.5 percent YoY due to the base effect," said Karan Gupta, Director, India Ratings & Research (Ind-Ra).

"Absolute credit expansion in Q4 FY22-23 is expected to stand between ~Rs 4-5 trillion as opposed to ~Rs 6.4 trillion in Q3 FY22-23 and ~Rs 3.4 trillion in Q4 FY21-22," said Aashay Choksey, Vice President & Sector Head, Financial Sector Ratings, ICRA.

In FY22-23, the growth in credit was led by bank branches in metropolitan centres, which account for nearly 60 percent of the total credit of scheduled commercial banks (SCBs), leading to a 17.2 percent on-year rise in lending. Urban, semi-urban, and rural branches also recorded double-digit credit growth, the RBI said.

"With rising rates, the net interest margins (NIM) of banks may see some moderation and some interest rate-sensitive sectors may see an impact if there is a major global liquidity accident or interest rate blow-out in the United States," said Sachchidanand Shukla, Chief Economist at Mahindra & Mahindra.

Economists believe that rate hikes by the RBI have failed to curb credit demand and widened the credit-deposit gap, triggering intense competition among banks for deposits, the ‘raw material’ for growth.

"Indian banks will need to contend with uncertainty over the interest rate cycle as well as the longevity of the credit growth cycle. Hence, they may prefer to raise interest rates tactically till there is clarity on these two counts," said Shukla.