New Delhi [India], May 6 (ANI) The incremental credit flow from banks, commercial papers (CPs) and corporate bonds outstanding could rise by Rs 7.3 lakh crore to 9.7 lakh crore during the current financial year FY21, according to investment information firm ICRA.
This will be a sequential growth of 22 to 61 per cent over FY20, albeit on a low base of Rs 6 lakh crore of FY20. The incremental credit flow during FY20 declined by 64 per cent from a level of Rs 16.79 lakh crore during FY19, said ICRA.
"Of the incremental credit flow of Rs 7.3 lakh crore to 9.7 lakh crore during FY21, we expect banks to account for Rs 6 lakh crore to 7 lakh crore of incremental credit growth and the bank credit outstanding to increase to Rs 109.2 lakh crore to 110.2 lakh crore by March 2021."
ICRA said the corporate bonds volume outstanding is expected to increase by another Rs 1.5 lakh crore to 2.5 crore and reach Rs 33.7 lakh crore to 34.7 lakh crore account by March 2021.
The volume of CPs outstanding is however expected to remain range-bound at Rs 3.3 lakh crore to 3.7 lakh crore by March 2021 as compared to the outstanding volume of Rs 3.5 lakh crore as on March 31 this year, thereby translating in limited incremental growth from this source.
"The sharp decline in incremental credit during FY20 was driven by slowing economic growth as well as heightened risk aversion among lenders," said Karthik Srinivasan, Group Head of Financial Sector Ratings at ICRA.
Nonetheless, the expectations of increase in incremental credit flow during FY21 are driven by increased credit demand amid weakening cash flows of borrowers because of COVID-19 induced stress as well as capitalisation of interest for the period of moratorium offered by lenders.
"Lower external commercial borrowings coupled with targeted long-term repo operations (TLTROs) could also drive up the domestic credit growth," he said in a statement.
Though the Reserve Bank of India announced TLTROs could support the corporate bond issuances in FY2021, the recent event of winding-up of debt schemes by a large mutual fund could adversely impact the assets under management of debt mutual funds.
"This could adversely impact the bond issuances and CP volumes as mutual funds have emerged as large investor segments in these instruments," said Srinivasan.