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Business News/ Industry / Banking/  FY20 credit growth holds up in Bharat as urban India slumps
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FY20 credit growth holds up in Bharat as urban India slumps

Credit growth in metropolitan areas slowed to 4.92% from 12.83% the previous year, down 790 basis points
  • The reasons why metro branches have seen slower growth is because large-ticket loans, typically disbursed by corporate branches in metros, slowed last year, says Care Ratings
  • Photo: MintPremium
    Photo: Mint

    MUMBAI : The plunge in credit growth in the last fiscal year was cushioned significantly by India’s countryside, though the economic engines in towns and cities must roar back to life for a sustainable return of loan demand.

    While overall credit growth in FY20 slowed to 6.28% from 12.9% in FY19, in the same period, rural credit growth came in at 10.9%, against 15.2% in FY19, according to disaggregated data released by the Reserve Bank of India. In contrast, credit growth in metropolitan areas slowed to 4.92% from 12.83% the previous year, down 790 basis points. One basis point is one-hundredth of a percentage point.

    RBI classifies bank centres with less than 10,000 people as rural; 10,000 to less than 100,000 as semi-urban; 100,000 and above to less than 1 million as urban and above 1 million as metropolitan areas. Among these categories, rural was the only one to post a 10%-plus credit growth in FY20. The worst figures came from the metros, where banks have 65% of all outstanding bank loans.

    “In the long run, what we have seen globally as well as in India is urbanization has been the force of growth for most investments. That underlying theme does not change in the long run although, in the near term, rural areas will be the point of rescuing the economy because, in terms of population, these account for 65% of our total population and 45% of the gross domestic product," said Sameer Narang, chief economist, Bank of Baroda.

    The reasons why metro branches have seen slower growth is because large-ticket loans, typically disbursed by corporate branches in metros, slowed last year, said Sanjay Agarwal, senior director, Care Ratings. “Moreover, some transactions get closed in the last few days of March every year and because of lockdowns and disruptions in period, these could not be completed," said Agarwal.

    Banking industry experts said the rural sector’s resilience may continue in the current fiscal year as well.

    Rahul Bajoria, chief India economist at Barclays, said a stronger rural sector should mitigate, but not fully offset, the ongoing economic damage

    “Despite the gloomy healthcare backdrop, the strong pickup in monsoon rainfall is a major positive for the rural economy. Not only has the country received above-normal rainfall as of 15 July, but... the temporal and spatial distribution has also been conducive to crop sowing," Bajoria wrote in a note on 16 July..

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    ABOUT THE AUTHOR
    Shayan Ghosh
    Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
    Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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    Published: 22 Jul 2020, 07:28 AM IST
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