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India's credit growth accelerated to 21 per cent year-on-year in October, led by stronger borrowing across corporate and small business segments, prompting HSBC's banking team to raise its loan growth forecast for the current financial year to around 18 per cent from 14 per cent earlier.
According to HSBC's latest Asia equity strategy report, corporate lending increased around 24 per cent year-on-year, while credit to micro, small and medium enterprises (MSMEs) grew 25 per cent, indicating broad-based momentum in demand for loans. The report said, "Our banks team expect credit growth remain strong, and have increased their FY27e loan growth estimate to c18% y-o-y (from 14%)". Deposit growth also accelerated to over 17 per cent year-on-year, compared with 12-13 per cent previously. The report said improved mobilisation through FCNR(B) deposits had also supported liquidity in the banking system. HSBC observed that domestic activity had held up despite external pressures, stating, "Despite the weak global backdrop, domestic activity has absorbed the macro pressures (higher oil and interest rates) much better than expected." The report said stronger credit demand was partly driven by higher working capital requirements amid currency weakness and a shift in corporate borrowing from the bond market to bank loans. However, it also pointed to signs of a recovery in private capital expenditure, supported by stronger imports of capital goods, machinery and electronics, as well as data on fixed capital formation from the Reserve Bank of India. Government spending has also supported domestic demand. By August, the Centre had spent 42 per cent of its full-year capital expenditure budget, compared with 38 per cent during the corresponding period last year. HSBC said this spending had provided an important cushion to economic activity, although the pace could moderate as expenditure normalises against annual targets. It also noted that free trade agreements signed in recent quarters were beginning to support exports, which had recently been growing faster than services exports for the first time in many years. However, HSBC cautioned that rising inflation and rural demand concerns could weigh on the outlook. Consumer price inflation rose to 5.5 per cent in September, a 23-month high, while deficient monsoon rainfall and low reservoir levels could affect winter sowing and rural consumption. The report warned that further price increases could begin to erode consumption in the coming quarters, even as stronger credit growth and government capital expenditure provide support to domestic activity. (ANI)
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