Furthermore, Reserve Bank of India’s (RBI’s) recent move to introduce long-term repo operations to reduce cost of funds for banks
will boost lending by banks, as they will be exempted from maintaining cash reserve ratio for incremental lending to the retail and micro, small and medium enterprises (MSMEs) segments. This will enable banks
to extend credit at a cheaper rate as they will be borrowing at the repo rate and the deposit rates will not have to be tampered with. According to CRISIL, “Incremental net domestic credit this fiscal up to December 2019 is just a fifth of what it was a year ago. Lending to the retail segment and non-banking financial companies (NBFCs) showed good growth, while credit to corporates (ex-NBFCs) and MSME declined”.
Retail credit growth is estimated to grow around 16 per cent in FY21, driven by sustained demand in the unsecured loans segment and buyouts by banks of the non-bank retail portfolios through direct assignment route. Securitisation transactions through the direct assignment route have surged almost 40 per cent to Rs 59,000 crore in the first half of FY20, compared to Rs 42,700 crore a year ago. Meanwhile, bank loans to corporate houses, excluding bank loans to NBFCs, is expected to remain subdued in FY20, but will see a slight pick-up from thereon. “Overall growth in this segment, however, is expected to remain low at 2-3 per cent in FY21, causing its share in total bank credit to fall 300 bps to 48 per cent between March 2019 and March 2021,” the rating agency said.
The drag in corporate lending will be on account of low capacity utilisation in the economy that will result in keeping private investments muted in the near to medium term.