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HomeBusinessIncrease in repo rate will affect credit growth of banks: Report

Increase in repo rate will affect credit growth of banks: Report

Mumbai, May 5 (PTI) The sudden hike in the policy interest rate by the Reserve Bank of India (RBI) is expected to have little impact on the credit growth of banks growing at the rate of 11 per cent.

Rating agency India Ratings and Research said in a report released on Thursday that industry and services sectors, which support the pick-up in credit growth, will continue to be a part of the demand, while credit growth in the agriculture sector remains stable and slowing in the retail sector. is estimated.

The report says that in the medium-term inflationary pressures, supply chain disruptions and moderation in consumption demand could hamper the improvement seen in credit growth.

According to the report, “The Reserve Bank of India has indicated a change in the interest rate cycle by increasing the repo rate by 0.40 percent. This will make borrowing costlier which will result in slowdown in credit growth.”

The agency said the response received from companies points to delays in capital expenditure plans. This is because they await more clarity on the macroeconomic front.

It said credit growth in banks has increased to 11.2 per cent in the early part of FY 2022-23 as against 5.3 per cent in the same period of 2020-21. This is the highest level since July 2019.

According to the rating agency, the second wave of the Kovid epidemic significantly affected the debt scenario in the year 2021, while the scenario had normalized to a large extent in early 2022.

However, India Ratings believes that credit growth is expected to remain subdued in the near term on higher commodity prices, demand from companies for working capital and return of money from the bond market to banks amid rising interest rates.

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