Non-food credit growth picked up to 8.32% year on year (YoY) during the fortnight ended January 28 from 8.1% in the previous fortnight, according to data released by the Reserve Bank of India (RBI). In December, loan growth had hit a two-year high of 9.28%.

Outstanding non-food credit as on January 28 rose to Rs 115 lakh crore from Rs 114.1 lakh crore at the end of the previous fortnight. Deposits grew at exactly the same pace as loans and stood 8.31% YoY at Rs 160.33 lakh crore.

Analysts are of the view that retail credit continues to be the chief driver of credit growth. In a recent report, Kotak Institutional Equities (KIE) said most of the demand is coming from smaller ticket segments. “Loan growth is being driven by the retail or SME (small and medium enterprises) side instead of the corporate sector. A rebound in demand for long-term loans, measured through growth in limits outstanding, is still not visible,” the report said.

KIE expects strong growth in ticket sizes of up to Rs 4 crore and negligible demand beyond that. The largest slowdown has been for loans with ticket sizes of more than Rs 10 crore. “We could, however, see some recovery in working capital as the cash conversion cycle starts to weaken due to higher commodity prices and other factors,” the broking firm said.

Banks insist, however, that corporate demand is showing signs of pick-up. State Bank of India (SBI) chairman Dinesh Khara said last week there has been a definite improvement in terms of the utilisation of sanctioned limits by companies. The bank has seen the unutilised portion in working capital loans drop to 43% from 52% in September 2021. In term loans, the undisbursed portion has fallen to 22% from 23% in December 2020.

SBI is currently sitting on unutilised sanctions worth Rs 2.06 trillion for working capital and Rs 1.99 trillion in term loans, and has seen growth of `50,000 crore in advances during January. “I am quite confident that going forward we will have a decent growth in corporate credit and I do not envisage any challenge on this,” Khara said.

The industry is betting on the government’s capital expenditure thrust in the FY23 Budget to lend a hand to credit growth. Sanjiv Chadha, MD & CEO, Bank of Baroda (BoB), told FE that demand has been picking up in sectors where the government has played an enabling role, such as roads and solar energy. “We have seen good demand because of the second-order effects of the government’s build-out of the infrastructure sector in terms of steel and cement companies putting up brownfield projects,” Chadha said.

As per Care Ratings’ estimates, the outlook for bank credit growth is in the range of 8% to 9% for FY22 with a low base effect, economic expansion, rise in government and private capex, especially capex for renewables and production linked incentive (PLI) schemes, extended support through the emergency credit line guarantee scheme (ECLGS) and a retail credit push.

“The medium-term prospects look promising with diminished corporate stress and increased provisioning levels across banks. The retail loan segment is expected to do well as compared with industry and service segments,” analysts at the rating agency said in a note.