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India Ratings and Research revised its outlook on banking sector to negative for second half of FY21 from stable.  (HT)
India Ratings and Research revised its outlook on banking sector to negative for second half of FY21 from stable. (HT)

Credit growth fails to pick up despite govt measures

  • Non-food bank credit has shrunk by 1.7 trillion in Mar-Aug period, shows RBI data
  • Private sector and state-run banks had an aggregate bad loan burden of 8.42 trillion as on 30 June, showed data from Capitaline

Five months into the fiscal year, bank credit growth is still to make a recovery despite nudges by the Reserve Bank of India (RBI) and the government. Outstanding non-food credit has contracted by 1.7 trillion between 27 March and 28 August, or on a year-to-date (ytd) basis, as a result of factors such as insufficient demand because of the impact of covid-19 and the limited risk appetite of lenders, showed data from RBI.

Credit pickup is typically low in the first half of financial years, but the contraction so far this year is higher than the same period last year.

On a year-on-year (y-o-y) basis, credit growth stood at 5.5% as on 28 August. Total outstanding non-food credit stood at 101.4 trillion as on 28 August, showed RBI data.

Bankers said they cannot be called risk-averse because reckless lending might have led to the last round of bad debt, a mistake they would rather avoid. Private sector and state-run banks had an aggregate bad loan burden of 8.42 trillion as on 30 June, showed data from Capitaline.

FY19 and FY20 were years of relative slowdown in the Indian economy when certain new measures like demonetization, goods and services tax and Real Estate Regulatory Authority were introduced, Arijit Basu, managing director, State Bank of India (SBI) said on 9 September. “All these have had their impact. While there has been a slowdown, the view that had emerged among many bankers was that from 2020-21 onwards, it could be years of very good economic growth coupled with very good credit growth for the banks in a risk-mitigated manner," he said.

“Despite the government’s emergency credit line guarantee scheme for micro, small, and medium enterprises, the incremental credit growth is weak," Care Ratings said in a report on 12 September. As banks are carefully choosing their credit portfolios because of asset quality concerns and with economic activity still subdued, bank credit is expected to remain sluggish in the near term, the rating agency said.

Deposit growth, on the other hand, remained more of less stable with y-o-y growth of 10.9% and ytd growth of 4.5%. Total deposits in the banking system stood at 141.7 trillion as on 28 August. The growth in deposits is being seen despite banks lowering interest rates, disincentivizing customers amid an increase in liquidity.

Meanwhile, India Ratings and Research on Friday revised its outlook on the banking sector to negative for the second half of FY21 from stable. This, the rating agency said, was in view of an expected spike in stressed assets, higher credit costs, weaker earnings because of interest reversals and lower fee income, and muted growth prospects in the wake of measures taken to contain the spread of covid-19.

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