Bank credit growth is set to bottom out but may rise 200-300 bps next fiscal while retail lending, supported by securitisation, will remain the key driver in the next fiscal.

The prolonged slowdown in bank lending may be bottoming out this fiscal, with gross credit offtake set to rise 8-9 per cent on-year in fiscal 2021, a good 200-300 basis points (bps) over the likely growth of 6 per cent this fiscal.

A gradual pick-up in economic activity, continuing demand for retail loans, and strong growth in lending by private sector banks should drive the uptick.

Recent policy moves announced in the Union Budget, and by the Reserve Bank of India (RBI) are also expected to provide the spur, Crisil Ratings said on Tuesday.

As for this fiscal, some growth momentum is expected in the fourth quarter, after a subdued three quarters -- due to traditional fiscal year ending growth.

The RBI's move to exempt banks from cash reserve ratio requirement for incremental credit to certain sectors for up to five years will also support lending.

Incremental net domestic credit this fiscal up to December 2019 is just a fifth of what it was a year ago.

Lending to the retail segment and non-banking financial companies showed good growth, while credit to corporates (ex-NBFC) and micro, small, and medium enterprises declined, Crisil said.