The rising loan demand from companies and individuals is leading to a high year-on-year credit growth in India to 20.2%.
Growth record
As per the report, credit offtake in India rose by 15 per cent year-on-year for the fortnight that ended March 24, 2024. However, the data shows an increment in borrowings throughout the year in financial years 22-23. Credit offtake increased by ₹17.8 lakh crore to ₹136.8 lakh till March 24, 2024, from March 2022, said the report. And today, according to a senior official at Axis Bank Ltd. reported that due to rise in demand for deposits, year-on-year credit growth rose to 20.2%.
This has been witnessed as the highest in the decade. However, the deposit mobilization has failed to keep up with the pace, growing year-on-year at 13.2%, according to the latest weekly data from the Reserve Bank of India.
The repo rates of the banks hike to 15%.
The increasing demand
According to a senior official at Axis Bank Ltd. states that the battle for the rising demand of the deposits may not slow for some time, but continue to rise on a constant scale. With the rising loan demand, the customers and companies are also expecting higher returns on their investments.
Effect on Axis Bank
The soaring demand for the credit loans is pushing Axis Bank Ltd. – among the top private sector lenders – to work on a number of strategies or change the existing ones. Maybe the new Strategies will consist of shoring up its liabilities business, which will include building partnerships with physical and digital partners across India and leveraging the bank’s some 5,000 branches. Deputy Managing Director Rajiv Anand also stated that the bank plans to add another 500 branches this year.
Although with all the demands rising so fast and high, Axis Bank Ltd is benefiting from strong consumer demand in Asia’s third-largest economy. The Bank has also acquired Citigroup Inc.’s retail portfolio this year, the Deputy Managing Director Rajiv Anand added.
Situation of the Bank
Seeing the high demands of the loans or credit, the Reserve Bank of India will have to lower the repo rate. RBI will keep less cash reserved with it and lend more to the banks to fulfil cash needs.
The spendings of the companies and the consumers on credit card purchases are growing strong on a monthly basis. Given the situation the Bank still doesn’t plan to change its retail and corporate lending procedure allocation, materially. But the Managing Director stated that they are looking at increasing the unsecured portion of their retail portfolio just by as the demand fits.
Possible reasons for the demand growth
Bank customers and companies are looking forward to a high investment return although the interest rates are high. Most probably the reason for the soaring demands is the rise of startups in India. The new startups are basically looking for some ways to spend less. Business investments can’t be reduced but tax liabilities are usually pardoned in the first new months of the business. And also the loan benefits are provided to the business. If any business company opts for a loan way of funding the company, tax liabilities aren’t imposed, given that the company already doesn’t have enough funds to even invest.
