Bankers said credit growth over a long period is typically seen as robust when it is about 1.2-1.3 times the growth of nominal gross domestic product (GDP). Non-food credit growth moderated in the final fortnight of 2022 and stood at 15.3% as on 30 December. Deposit growth stood at 9.2% in the same period, showed data from the Reserve Bank of India (RBI). “What we are seeing now is entirely out of sync with what would be a sustainable level. I do not believe this is the kind of level of growth that we should be looking at indefinitely," said Sanjiv Chadha, chief executive of Bank of Baroda.
Chadha said that India’s corporate sector deleveraged substantially over the last two years. Unlike in the past, where there was irrational exuberance that led to very high demand and to banks lending illogically, Chadha said, there are more mature borrowers now.
“Banks will have to settle for lower margins but much better credit quality. What is behind us is the time when there was indiscriminate investment without looking at what is going to happen, assuming demand will fall in place," he added.
According to Prashant Kumar, chief executive of Yes Bank, one should not read too much into the current credit growth of 19-20% because this is a mathematical outcome.
However, fundamentally looking at how the economy is growing, credit growth will remain buoyant, maybe in the 13-15% range, he said.
“Growth will continue because of the large market and also because of the overall improvement in lifestyle, wealth and aspiration of customers. The aspiration of the population is quite high, and so we are definitely in a very sweet spot," said Kumar.
Hitendra Dave, chief executive of HSBC India, said credit growth where banks used to finance 60-70% of the project cost worth ₹30,000-50,000 crore is not going to come in the current cycle. “I do not think we want it to come as well. We know that there is a significant amount of padding up there. Banks have also learnt from the very heavy price the industry paid. That said, it will not be the bond market which finances the next credit cycle, but banks will play a large role. The next round of credit growth would be granular," Dave said.
Speaking on retail credit growth outpacing loans to industry, Dave said that banks do a thorough due diligence on retail borrowers. “The only risk in the retail book would be that we have never experienced a period of mass unemployment. Nothing on the horizon suggests we are about to be there. In the retail ecosystem, we have credit bureaus and multiple checks and granularity; you will have losses but will not have the same experience that we did five years back," he said.
Banks, Dave said, are on a long runway of growth both in the retail segment as well as in the micro, small and medium enterprise (MSME) segment. Kumar of Yes Bank said that while the MSME sector has faced some seasonality and supply chain issues, fundamentally, banks do not see any kind of delinquencies or sickness in the space. “I think on the retail side, if you see the banking sector for the last four or five years, there has been tremendous growth. We have passed through very difficult times of covid-19. But I think nobody saw the kind of delinquency which people were expecting to, even during covid was over," Kumar said.
On deposit growth trailing credit growth for the banking industry as a whole, Chadha said that there is a very large element of ‘recency bias’ in talk of deposit growth. He said he has no reason to believe that deposit growth will become too much of a challenge, although there will be some structural shifts.
Regarding expectations from the upcoming Union Budget, bankers said the banking sector is not looking for any direct measures but hopes that the government continues on the path of fiscal conservatism it has displayed so far.
