Bank credit contracts in April-May in worst performance in last five years
Bank credit growth is usually tepid in the first few months of the fiscal year, as the economy recovers from accelerated spending at the end of the previous fiscal year
Bank credit growth is usually tepid in the first few months of the fiscal year, as the economy recovers from accelerated spending at the end of the previous fiscal year and as banks recover from the window dressing given to their balance sheets at end-March.
The chart shows the incremental growth in bank credit in April-May in the past five years. This year, bank credit contracted sharply during those two months.
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That’s not all. It wasn’t just the beleaguered industrial sector that saw a contraction in bank advances—it was across the board, in agriculture, in services, even in personal lending. This across-the-board contraction is happening for the first time in the last five years.
There could be several reasons: banks may have gone overboard with their year-end window dressing; it may reflect poor demand in the economy—the fall in agricultural lending has happened for the first time in the last five years and could reflect rural distress; and it could be a fallout of the parlous state of public sector banks, plagued by high bad debts and low capital.
Incidentally, even priority sector lending is down by Rs97,800 crore in April-May this year.