Bank credit to see slow growth in FY20

New Delhi: Growth in bank credit may decelerate sharply to 8-8.5 per cent during 2019-20 from 13.3 per cent last fiscal, mainly due to decline in incremental credit in first half of the current financial year, rating agency Icra said in a report.

"Moreover, with the bond markets remaining risk averse towards NBFCs, the YoY growth in the volume of bonds outstanding is expected to moderate to about 4 per cent in FY2020 from 12 per cent in FY2019," it said.

Additionally, the recent changes in mutual funds regulations are likely to result in a decline in the volume of commercial paper (CP) outstanding by March 2020, it said.

Considering these three domestic sources of funding, that is bank credit, corporate bonds and CP outstanding, Icra expects year-on-year credit growth to decline to 6.2-6.8 per cent in FY20 from 13.5 per cent in the last financial year.

A shift of large borrowers such as NBFCs and housing finance companies (HFCs) to the banking system for their funding requirements had boosted bank credit growth in FY19, it said.

However, factors such as muted economic growth, lower working capital requirements of various borrowers, as well as risk aversion among lenders, have compressed incremental credit in first half of the current fiscal, it said.