According to CRISIL, due to recent government’s stimulus package and related measures for providing a boost to India’s Micro, Small and Medium Enterprises (MSMEs) sector MSME loans are expected to grow the most at 6-7% this fiscal.
”MSME loans are expected to grow the most at 6-7% this fiscal, riding on the government’s stimulus package – particularly the Rs 3 lakh crore Guaranteed Emergency Credit Line – and are likely to be driven by public sector lenders,” said Crisil ratings in its report.
Despite the decline in disbursements, credit growth will be positive on account of lower repayments during the moratorium and capitalisation of interest accumulated.
However, the remaining one-fourth of the overall credit pie – comprising MSMEs and agriculture – offers some solace.
The Crisil in its report further said that Bank credit growth will hit a multi-decade low of 0-1% which will be nearly 800 bps lower than the 8-9% growth expected before the pandemic.
“This crisis is unprecedented and so will its economic fallout be – such as lower capex demand as well as lower discretionary spends, to name some – which will slow down credit offtake significantly across segments in the current fiscal,” said Krishnan Sitaraman, Senior Director, CRISIL Ratings.
”The corporate loan portfolio, which constitutes almost half of total credit, is expected to be the worst-hit, and de-grow this fiscal. The lockdown has led to significant disruption in operations with limited capacity utilisation across sectors,” he added.
Given the expected economic contraction – the first time in four decades – the banking sector is expected to witness one of its slowest years, said the report.
The report further revealed that retail lending, which is about a fourth of overall credit and was holding fort so far, is also expected to slide amid job losses and salary cuts that will lead to reduced expenditure on discretionary items. Purchase of new homes and vehicles are expected to be delayed, impacting demand for financing.
Agricultural loans will likely grow 3-4%, supported by expectations of a normal monsoon and faster recovery in rural India from the pandemic.
“The uncertainty has led to increased risk aversion among lenders,” said Says Subha Sri Narayanan, Director, CRISIL Ratings.
”Therefore, boosting lender confidence through specific sectoral measures that can allay their concerns and lead to efficient transmission of rates and funding, is an imperative to enhance credit growth,” he added.