Indian credit demand surges but recovery still far ahead

Gross non-performing loans drove the increase in credit.

Gross non-performing loans (GNPL) were the most responsible in the growth in credit demand in India, but recovery may still take a long time, according to a Maybank Kim Eng report.

GNPL growth, along with deposit growth, government spending, and increase in investment demand, were shown to have the strongest influence on credit demand in the two periods of assessment spanning 26 years and 10 years, based on analysis.

Furthermore, faster credit growth, slow growth in government spending, manufacturing and industrial sector have the most impact in the GNPL surge.

Banks have also been gradually focusing on sustainable credit growth and sound liquidity, the report said, evidence that they have not sacrificed asset quality. They are also pivoting towards strong underwriting, analytics and risk management practices to maintain secure balance sheets.

However, overall credit growth will still be poor due to high system NPL and lack of private investment demand, with private banks at a better standing due to their retail-oriented portfolio, adequate liquidity, higher pandemic provisions and stronger capital base, the report concluded.

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