India's credit growth increased by 21% in October compared to the previous year. This growth is primarily due to strong demand for loans in the corporate and small and medium enterprises (SMEs) sectors, prompting HSBC to raise its loan growth forecast for the current fiscal year to 18% from the previous 14%.
Increase in Corporate Lending and Support for Small Businesses
According to HSBC's new Asian equity strategy report, corporate lending has increased by 24% compared to the previous year, and loans to small and medium enterprises have seen a 25% growth. These figures indicate widespread demand for loans and a continued positive trend in this area.
Growth of Deposits and Economic Impacts
Deposit growth has also increased to over 17% compared to the previous year, showing a significant improvement from the previous 12-13%. HSBC also noted the positive impact of FCNR(B) deposits on increasing liquidity in the banking system. Despite external pressures, domestic activities have managed to absorb these pressures well and have performed better than expected.
Part of the growth in credit demand is due to higher working capital needs following currency weakness and the shift of corporate borrowing from the bond market to bank loans. There are also signs of improvement in private investment, supported by increased imports of capital goods and machinery and data related to fixed capital formation from the Reserve Bank of India.
Government spending has also contributed to domestic demand. By August, the central government had spent 42% of its annual capital investment budget, compared to 38% in the same period last year, indicating positive growth.
HSBC emphasized that this spending has acted as an important cushion for economic activities, although the pace may slow as expenditures normalize against annual targets. Additionally, free trade agreements signed in recent months have begun to support exports.
However, HSBC has warned that rising inflation and concerns regarding rural demand could negatively impact the economic outlook. Consumer price inflation reached 5.5% in September, the highest figure in the past 23 months.
