Banking system credit expected to grow 9% in FY23: Axis Bank

Axis Bank expects banking system credit to grow 9% in FY23, about 50 basis points higher than its FY22 projection of 8.5%.

The private sector bank attributed this to the recovery in demand for working capital and an improving outlook for business credit, although borrowers appear to gravitate towards banks rather than non-banks in an upside scenario. interest rates.

Saugata Bhattacharya, EVP – Business and Economic Research and Chief Economist, Axis Bank, noted that rising commodity prices could lead to increased demand for working capital. He observed that if interest rates tightened, there could be a shift in demand for credit from non-banks to banks, the reason being that banks have a price advantage due to the access to low-cost deposits.

In addition to continued consumer credit demand, the outlook for business credit is also improving.

Lower GDP projection

The aforementioned credit growth projection comes as the bank’s business and economics research team estimates GDP growth of 7.8% for FY23, 110 basis points lower than the GDP growth forecast. GDP for FY22 of 8.9%.

Given rising prices for crude oil and other raw materials (metals, fertilizers, grains, edible oils), Axis Bank pegged the average consumer price index (CPI) at 5.6% for FY23 versus a projection of 5.4% for FY22.

For FY23, RBI forecast real GDP growth of 7.8% and CPI inflation of 4.5% in its February monetary policy review. While anticipating a status quo in the next monetary policy review, Bhattacharya said the repo rate could be increased by up to 50 basis points in FY23.

Cascading impact

Bhattacharya expects a total impact of 79 basis points on inflation in the event of a 10% increase in petrol and diesel pump prices, a 10% increase in kerosene and LPG and a second round impact (assuming 50% pass).

The first-order impact of a 10% increase in crude prices is 20 basis points. The ability of firms to pass on rising input costs will determine the impact on incomes and consumption.

Published on

March 28, 2022

Comments are closed.