The surprise rate hike by the RBI signalling a reversal of the interest rate cycle will weigh down on the banking system’s credit growth, which was showing signs of revival with an 11 per cent growth, a report said.

The tailwinds supporting a pick-up in credit growth will be in demand from the industry and services segments, even as growth in the agriculture segment remains stable and muted in the retail segment, India Ratings and Research said.

Over the medium term, inflationary pressures, supply chain disruptions and a weak consumption demand could upset the current revival in credit growth, it added.

The reversal of the interest rate cycle as signified by the 0.40 percent increase in repo rate by the Reserve Bank of India would weigh down on the credit growth as borrowings become costlier, it said.


The agency added that it has received feedback from the companies rated by it, which points to a delay in capital expenditure plans as they await more clarity on the macroeconomic front.

It said that banking system credit growth offtake has shown a significant pick-up in the early part of FY23, with credit growth of 11.2 per cent as of April 8, 2022, compared to 5.3 percent in the same period in 2021, it said, adding that this is the highest since July 2019. The agency believes that while the second Covid wave had significantly impacted the credit outlook in 2021, the outlook reasonably normalized at the beginning of 2022.

In a report published in February, the agency had estimated that the system wide credit growth will stand at 10 per cent for FY23. The number was not revised in the latest update. On Monday, it said the sectors which are likely to continue to perform well will include power, metals, cement, chemicals and textiles, while telecom, pharma, and commercial real estate will be under pressure.