Is the government’s push to public sector banks to start lending finally bearing fruit?
Non-food credit advanced by scheduled commercial banks surged by Rs12,087 crore during the week to 2 January, ending several weeks of contracting credit. As a matter of fact, between 31 October and 26 December, non-food credit outstanding went down by Rs7,760 crore, which shows the extent of the disruption in the credit markets during the period.
Several private sector banks that have declared their results for the December quarter have either shown a contraction in credit over the quarter or very tepid growth. But all of them have also indicated that there has been some relief from the dire circumstances during the last quarter and credit growth is expected to improve.
It’s true that liquidity has improved among banks. That’s seen from the credit-deposit percentage, which has improved from 75.43% on 31 October to 73.48% on 2 January.
But banks have also been deploying the bulk of their resources in investments, to take advantage of falling yields.
The investment-deposit percentage for banks has gone up from 28.61% on 31 October to 31.73% on 2 January. Over this period, non-food credit outstanding has increased by a mere Rs4,327 crore, while investments in statutory liquidity ratio (SLR) securities by banks has gone up by Rs1.42 trillion.
It is too early to say whether banks have started to lend again.
On a year-on-year (y-o-y) basis, non-food credit growth is still high, at 23.9%.
During the last credit crunch in this country, y-o-y growth in non-food credit slumped from 25% in January 1996 to 10.4% in February 1997.
Seen from that perspective, either bank lending is going to get much worse, or this credit crunch is no big deal. We suspect the former is more likely to be the case.
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