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The total asset/liabilities growth of the banking system in the last nine years (FY14-FY23) was 1.3 times higher than the growth in the last 63 years (FY1951-2014), per a State Bank of India (SBI) report.
The Bank’s Economic Research Department (ERD), in its Ecowrap report, opined that the credit to nominal GDP ratio in FY24 may end up being around 1.7 times, up from 1.2 times in FY23, boosting the flow of funds to the broader economy, helping sustain the momentum.
The combined incremental growth in assets and liabilities of ASCBs (all scheduled commercial banks) for the 9-year period ended March 2023 comes to ₹187-lakh crore against the ₹142-lakh crore growth cumulatively clocked during the six-plus decades post independence (FY1951-2014), said the report.
“With credit growth clocking new highs since early 2022, there is a growing need to assess the multiplier effect created through the broader economy within the overarching objective of sustainability.
“…The credit-to-GDP gap has also narrowed, reflecting the improved credit demand in the economy in the face of rising capacity utilisation in the manufacturing sector,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
He noted that there is a one-way causal relationship between GDP and ASCB credit, with increase in credit leading to higher GDP (based on credit and GDP data from 1990)
Per the ERD’s analysis of time trend in retail loans, there is no major compositional shift (since April 2021 for secured and also unsecured portfolio of retail credit), with both secured and unsecured segments growing since Covid.
Also, the share of secured portfolio dominates the unsecured portfolio within retail space. Further, the total share of unsecured retail loans is only around one-tenth of ASCBs’ credit portfolio, indicating contained risk at the time.
“Lenders could also draw comfort from the fact that secured loans are mostly long term (housing loans constitute nearly half of the retail portfolio), while unsecured loans are mostly demand loans that have lower comparative presence on lenders’ balance sheet; higher RoI (rate of interest) also nudges borrowers to opt for pre-payment in many cases. Quality of retail portfolio growth of NBFCs, including Fintechs + P2P, has recovered in FY23,” said Ghosh.
While approval rate for NTC (New to Credit) borrowers, whom lenders treat cautiously in the beginning, stood at 23 per cent for the period ending March 2023 (lower compared to 34 per cent and 28 per cent in 2020/21, respectively) the score tier upgrade for borrowers from Subprime, Near prime and Prime segments clocked better numbers than score tier downgrade (FY 23 over FY22) emphasizing much improvement in underlying spirits, per the report.
Recent origination statistics by Risk Tiers in consumer credit showcase increasing sectoral alignment: PSBs (public sector banks) clearly trumping peers in terms of better rated customer onboarding,it added.
Referring to CIBIL CMI data (March 2023), the ERD said personal loans of ₹50,000 and more comprise about 98 per cent of the total personal loan book size in terms of value.
personal loans
Small-ticket personal loans of less than ₹50,000 form about 2 per cent of the personal loan book size (in terms of value), and account for only 0.3 per cent of the total retail loan book size at industry level.
The ERD noted that household debt as measured by outstanding per credit card in India has been either static or declining both in nominal and real terms (after adjusted for CPI inflation) in 2023.
The decline in real outstanding per card despite higher inflation expectations is a positive development, it added.
In nominal terms, the outstanding per credit card rose by 13 per cent in August, down from 24 per cent in January. The real outstanding per credit card growth in August declined to 5.8 per cent from 16.4 per cent in January.