Credit growth continues to remain strong

In FY23, credit growth has gained further traction over FY22 and has recorded a 3-year high growth of 14 per cent (YoY) as on July 15, (6.5 per cent in last year). The incremental growth (YTD) in credit is Rs 3.8 lakh crore (3.3 per cent) till date (degrowth of Rs 0.7 lakh crore last year or –0.6 per cent). It's clearly evident that the demand for credit is still continuing.

The sector-wise credit data for the month of June indicates that there is a substantial improvement in incremental credit to each and every sector. Specifically, credit growth to MSME sector has expanded by Rs52,800 crore in current fiscal as against degrowth of Rs 61,000 crore in similar period previous fiscal. Retail loans expanded by Rs 1.34 lakh crore against degrowth of Rs 26,500 crore last year. Clearly, the evolving war seems to have not significantly impacted sentiments on the ground, says an internal report by SBI Economic Research.

With capacity utilisation nearing 75 per cent, investment activity is expected to strengthen further, driven by rising capacity utilisation, government's capex push and deleveraged corporate balance sheets. While, the aggregate deposits grew by 8.4 per cent YoY for the fortnight ended July 16, compared to last year growth of 10.7 per cent. On YTD basis, aggregate deposits increased by Rs 3.4 lakh crore (2.1 per cent), compared to last year YTD growth of Rs 4.0 lakh crore (2.7 per cent). During the fortnight (01-16 July), there is a decline in deposits by Rs 1.51 lakh crore and Rs 1.0 lakh crore in credit. The decline in deposits is due to the trend in every alternative fortnights, which may be due to salary withdrawals in the first fortnight of every month for recurring consumption purposes.

"The sector-wise credit data for the month of June indicate that there is a substantial improvement in incremental credit to each and every sectors. Personal loans continued to grow at a robust pace and grew by Rs 523 billion in June and services grew by Rs 273 billion. Interestingly, retail loans now have the largest share (29.1 per cent) in the outstanding credit of ASCBs, displacing industrial loans (26.2 per cent) in May," says Soumya Kanti Ghosh, SBI Group's chief economic advisor.

Going forward, the outlook on banking sector depends upon the evolving geopolitical situation and its impact on global commodity prices and logistics. In FY23, we expect both deposits and credit will continue to grow in double digits, despite the interest rate reversal, he said.

The yearly SBI Composite Index declined and is at 56.1 (high growth) in July, compared to 56.4 (high growth) in June while, the monthly index increased marginally to 55.9 (high growth) in June from 55.8 (high growth) in June. The rise in monthly index is due to the continued upturn in business activities. Based on the SBI index, analysts believe IIP and IIP manufacturing may grow in double digit both in June and July.