Slowdown Blues : Credit growth may plunge to 58-year low

Mumbai: As the GDP growth has plunged to an over six-year low of 4.5 per cent in the second quarter of the ongoing fiscal, credit expansion may plummet to a six-decade low of 6.5-7 per cent in FY20, says a report.

Credit growth was a high 13.3 per cent in the previous fiscal, says rating agency Icra in a report.

If the forecast turns out to be true, this will be lowest credit growth in as many as 58 years -- credit growth stood at a low 5.4 per cent in FY 1962, according to the annual credit growth data on the RBI website.

It can be noted that GDP growth plunged to a 25-quarter low of 4.5 per cent in the second quarter and to 5 per cent in the first quarter and nobody is forecasting better numbers going ahead.

Even the RBI has massively slashed its growth forecast to a low 5 per cent for the year -- down by a massive 240 bps from its February projection of 7.4 per cent.

Many international agencies have also revised downward their economic growth forecast for FY20.

Moody's has lowered its GDP growth to 4.9 per cent from 5.8 per cent, while Japanese brokerage Nomura has pegged it at lowest 4.6 per cent for the fiscal.

Till end-November, according to RBI data, credit growth has been clipping at under 8 per cent. The agency attributed the likely weak growth in advances will be on account of muted incremental credit growth so far in this fiscal.

"Factors such as muted economic growth, lower working capital requirements as well as risk-aversion among lenders will compress the incremental credit growth in FY20," report said.