Mumbai: High borrowing cost for companies in the debt market, increased risk aversion towards non-banking finance companies (NBFCs) and large volume of portfolio assignments have helped banks to close FY19 with a double-digit credit growth of 13.2 per cent. However, deposit growth continued to lag behind credit growth.
According to the Reserve Bank data released on Thursday, bank credit rose 13.24 percent to Rs 97.67 lakh crore as on March 29, 2019 while deposits grew by 10.03 per cent to Rs 125.72 lakh crore during the same period.
For FY18 bank credit had grown by 10.5 per cent to Rs 86.25 lakh crore while the deposit growth was a mere 6.7 per cent to Rs 114.26 lakh crore.
Anil Gupta, Sector Head, Financial Sector Ratings at ICRA, explained, “The rise in bond yields during the last one year prompted even the high rated companies to shift to banks for their borrowing requirements as the increase in MCLR was relatively lower than the rise in bond yields.”
While the marginal cost of funds based lending rate (MCLR) of top banks is at 8-8.5 per cent, a AAA rated company is able to raise money through the debt market at upwards of the MCLR rates due to elevated bond yields. Banks can link loans for a AAA rated borrower to one month MCLR, which is lower. On the other hand, the average yield on a five-year AAA rated bond was 8.36 per cent during Q4FY19, as compared to 7.85 per cent in Q4FY18.
“Secondly, NBFCs too moved to banks to borrow for their funding requirements as their ability to raise money from the debt market was impacted due to the investors’ increased risk aversion towards them, which also supported banks to report strong credit growth. In addition, the portfolio assignments and securitisation also rose sharply,” added Gupta.
Speaking about deposit growth, Gupta said, “With credit-to-deposit ratio of the banking system nearing all-time-high of 78 per cent, banks also aggressively mobilised wholesale deposits to meet their credit growth requirements, which helped improve banks credit growth in FY19 compared to FY18.”
Domestic securitisation market volumes touched a record Rs 1.44 lakh crore (monthly run rate of Rs 16,000 crore) during the nine-month period (April to Dec.) of FY19 compared to market volumes of Rs 84,000 crore (monthly run rate of Rs 7,000 crore) for the entire FY18.
Meanwhile, foreign investment of companies grew 18 per cent to $2.69 billion in March....