Credit growth may be restricted at 8% in FY18, says ASSOCHAM

A slowdown in the economy coupled with high stress level in the banking sector is expected to restrict credit growth at around eight per cent during the current fiscal despite government’s thrust on loan expansion, says a study by Associated Chambers of Commerce of India (ASSOCHAM).
However, this would be slightly better than the five decade low growth of 5.1 per cent in non-food credit recorded for the financial year ended March 2017.
Growth in the credit this year would be mainly driven by the retail segment and farm loan, the industry chamber said, adding expansion could also be contributed by some segments of the industry related to infrastructure if they pick up in the second half of the current fiscal.
There could be some uptick in lending towards the micro, small and medium enterprises (MSME) sector with the government asking banks to increase their exposure to the sector as they are one of the largest employers, ASSOCHAM said.
One of the objectives of the staggering Rs 2.11 lakh crore capital infusion programme announced by the government in October is to enable banks to enhance lending to industry especially MSME by strengthening balance sheets of non-performing assets (NPA)-ridden public sector banks (PSBs), it said.
NPAs of public sector banks have increased to Rs 7.33 lakh crore as of June 2017, from Rs 2.78 lakh crore in March 2015.
Notably, the corporate sector is not getting loans from banks as lenders have become risk averse due to mounting NPAs.
To make matter worse, companies with good ratings are tapping market as rates are cheaper in the bond markets.
Only segments which are witnessing healthy growth are personal and agriculture credit with jump of over 10 per cent, it said.
“This situation is going to continue more or less the same for the rest of the financial year limiting credit growth between eight and nine per cent for the entire fiscal even after taking into account acceleration during second half of the financial year referred as busy credit season, and proposed strengthening of balance sheets of PSBs,” it said.
Recapitalisation would have limited impact on credit growth and that too would be restricted to the last quarter of the ongoing fiscal, it said.
However, it said, this would have greater ramification in the next fiscal.
Despite, Moody’s upgrade of the Indian economy by a notch to Baa2, it is still not out of the woods of demonetisation and implementation of the goods and services tax, it said.
Even the latest numbers are not very encouraging. For example, credit growth expanded by 6.6 per cent in October as compared to an increase of 6.7 per cent in the same month previous year, it added.
The credit offtake rose at a lower pace of 6.1 per cent in the previous month as compared to an increase of 10.8 per cent in September 2016.
The growth was slightly lower at 5.5 per cent in August as compared to an increase of 8.2 per cent in the same month previous year.