Credit growth for banks, NBFCs to rise; asset quality, earnings seen range bound

Strong fundamentals will steer these sectors through the evolving regulatory, and macroeconomic landscape

- KUMAR KHANNA

Banks and non-banking financial companies (NBFCs) are poised for a slight uptick in growth this financial year, on the back of expected pickup in consumption demand in the second half driven by government and regulatory measures.

For banks, credit growth is estimated at 11-12 per cent this financial year - a tad higher than last year's 11 per cent. The expected reversal of corporate bond market substitution will also aid this growth. Confirming this trend, bank credit growth accelerated 93 basis points (bps) on-month to 11.3 per cent in October, snapping out of a lacklustre first half.

This growth is spearheaded by the retail portfolio with a boost to consumption from four fronts: Goods and services tax (GST) rationalisation, lower interest rates, benign inflation and personal tax cuts. Further support will come from the Reserve Bank of India's (RBI) measures to enhance systemic liquidity, including the cut in cash reserve ratio, revised liquidity coverage ratio norms, rollback of higher risk weights on bank lending to non-banking financial companies (NBFCs), and clearer project financing guidelines.

Growth in MSME and agricultural lending is expected to remain steady while on the corporate front, loan growth is likely to decline marginally from last financial year -- weighed down by a subdued first half.