Bank credit growth to decline to ~0-2% over fiscal 2021
Given the increasing intensity, spread, and duration of the pandemic, economic recovery is expected to be weak in fiscal 2021. Hence, we estimate banking credit growth to slow to 0-2% in the fiscal 2021.
Retail which used to drive overall banking growth in the past, which in turn was driven by housing and personal loans, will be impacted given sluggish economic activity and vulnerable customer income source. Banking credit growth to be supported by government schemes and increased working capital demand from MSMEs and corportes amid economic slowdown in fiscal 2021.
Inorder to ease finanical stress and improve sentiments, RBI permiited 6-month moratorium which ended on August 2020 and restructuring which is to implemented in fiscal 2021 and will extend for a period upto 2 years. Approx 19-20% of the book is expected to be under moratorium by August 2020 and ~30% of moratorium book i.e.. 5-6% of overall book is expected to be restructured. Restructuring to delay recognition of NPAs and mask asset quality for fiscals 2021 and 2022. GNPA is expectedto improve from 8.5% as on fiscal 2020 to 8.3% in fiscal 2021 on the back of lower slippages and resolutions. It is expected to increase to 8.9% to fiscal 2022 becuase of increased slippages given some of the slippages from the restructured book but will still not be reflective of the overall stress as restructured assets is expected to be 4-5% by fiscal 2022.
Moratorium and restructuring led lower fresh slippages and lower write-offs to reduce credit costs and improve profitability for the sector optically for the fiscals 2021 and 2022.
