Credit offtake, elusive in the first half of the fiscal, seems to be making a noticeable comeback, with signs of a revival in corporate banking, improvement in company profits and a revival of capex plans. In fact, in December 2009, credit grew by Rs 1 lakh crore, the highest growth in a single month for over a year.

“There was a sharp downturn in credit growth in the first half of the fiscal, not only because of the impact of the global financial crisis, but also because of the high base effect of 2007-2008,” says Vaibhav Agarwal, analyst with Angel Broking. ”Now, as the base effect begins to wear off, and lending improves, it seems likely that banks will achieve 15 per cent credit growth by March.”

Credit growth was especially robust in FY08 at around 30 per cent. At the time, the central bank’s main worry was too much growth. However, this was before Lehman Brothers collapsed, triggering a pullback in liquidity worldwide, which in turn affected the Indian banking system.

Companies called a halt to expansion plans and retail clients stopped seeking home and car loans, due to fears of job losses in a slowing economy. By the middle of FY09 bank credit hit a 10-year low at 9.8 per cent.

Now, those dark days seem to be coming to an end. “A credit growth of 14-15 per cent is commendable for the end of the year, especially because public sector banks had to step in with funds during the financial crisis to help companies with their short-term needs,” says Bhavesh Kanani, banking analyst at Sharekhan. “Besides, even large private sector banks had drastically cut down on retail lending and unsecured lending became nearly taboo.”

The bounceback is even stronger for some banks like Canara Bank, whose Chairman A C Mahajan expects to end the year with a 16-17 per cent jump in lending. Mahajan expects credit growth to improve in this quarter, especially because corporate lending has shown significant signs of acceleration in the past month or so. “For the industry, credit growth in the current fiscal has to be viewed against the high base of last year, as well as the lower demand that banks had to face in the current year in the aftermath of the financial crisis,” he says.

While the third-quarter results are not expected to be spectacular, given subdued core income and lower support from treasury income, analysts are confident that the current quarter will be a much better one financially, primarily because of the pick up in credit offtake.