Banks to see 15% plus credit growth in FY22-25 period: ICICI Securities


India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned and confident to embark on the path of re-leveraging, according to ICICI Securities.

Indian financiers, too, have fortified themselves with ample liquidity/ capital buffer to tap the emerging opportunity, said research analysts Kunal Shah, Renish Bhuva and Chintan Shah.

They observed that Year-To-Date (YTD) growth of 2.2 per cent suggests bank credit growth in FY21 will settle upwards of 5 per cent (at least 3-4 per cent accretion is witnessed in February/March historically).

Post that, the analysts expect 9-10 per cent credit growth in FY22. Recovery in economic activity and derivative effect of increased investments and corporate/government spending on consumption will sustain the momentum of 15 per cent plus growth over FY22-25

Gold loans shine

In a report, ICICI Securities said Banks’ gold loan portfolio has seen 67 per cent compounded annual growth rate (CAGR) growth over the past 2 years and is also up 65 per cent YTD and 132 per cent YoY to ₹43,100 crore.

The report attributed this largely to focus of banks towards secured lending products post loan-to-value (LTV) relaxation.


The analysts said service segment credit (led by lending to non-banking finance companies/NBFCs and financial services) is now gathering pace – up 1.6 per cent YTD/8.4 per cent YoY.

Lending to NBFCs and financial services was up 2.6 per cent MoM/10 per cent YoY.

Loans to public financial institutions have jumped 79 per cent YTD/151 per cent YoY, while lending to housing finance companies (HFC) has shrunk 31 per cent YTD (flat YoY).

“This clearly shows banks’ lending preference more towards public institutions than HFCs.

“NBFCs, after having consolidated for almost 2 years now, significantly deleveraging the balance sheet by running down high risk profile assets, are now more confident to pursue growth opportunities in a risk-calibrated manner,” the analysts said.

Consequently, bank lending to NBFCs should stabilise in FY22 rather than decelerate like FY21.

Retail credit

Retail credit is now inching closer towards double-digit mark (6.7 per cent YTD/9.1 per cent YoY) – housing, credit card, vehicle have picked up buoyancy over the past couple of months, per the report.

It assessed that one of the key segments that has retraced faster than anticipated is credit card – outstanding up 5 per cent YoY, now up 7.6 per cent YTD building over almost 14 per cent YTD decline in May 2020.

ICICI Securities noted that despite strong real estate sales and spike in registrations in housing projects, there has not been much traction in housing portfolio till January 2021.3.7

Housing (including priority sector lending) is up 7.7 per cent YoY and 1.7 per cent MoM, while YTD growth stands at 5.9 per cent which is not significant considering the strong traction seen in real estate deals, it added.

Vehicle loans led by improved sales amidst festive demand is up 2.5 per cent MoM, 6.9 per cent YTD and 7.0 per cent YoY.

MSME sector

The report said the MSME (micro, small and medium enterprise) sector was under a prolonged downcycle of credit growth over the past few quarters.

The sector saw momentum July 2020 onwards, post the introduction of the Emergency Credit Line Guarantee Scheme (ECLGS) by the government as an aid to MSMEs, which were in trouble, it added.

Banks, in particular Public Sector Banks, extended full support to MSMEs which resulted in MSME credit book jumping 33 per cent in a period of seven months to ₹1.27 lakh crore from ₹96,000 crore in June 2020. In terms of YoY growth, it is up 19.1 per cent and up 20.5 per cent YTD.

The report said the agriculture sector is leading the credit growth momentum with 9.5 per cent YTD/10 per cent year-on-year (YoY) growth (1.8 per cent month-on-month/ MoM).

Industry credit

Industry credit is still lagging with YTD decline of 4.3 per cent (down 1.3 per cent YoY). However, downward trajectory in industry credit (particularly large industries) has been arrested since past three quarters and there is a marginal MoM uptick since November.

The analysts underscored that the key sectors that are deleveraging continuously include telecom and other infra, construction, metals and petroleum. On the other hand, textiles, chemical, plastics, paper products have gathered credit momentum.

“However, with revival in consumer demand and rise in government spending, we believe industry growth can emerge as a key driver for credit growth in coming years.

“We believe industry growth can emerge as a key driver for credit growth with 6 per cent growth in FY22 and 13-15 per cent growth over FY23-25,” the analysts said.


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