Outstanding bank loans shrink in two weeks of June as demand slump continues
While total non-food credit shrunk by ₹1,927 crore in 14 days from 5 June, it had seen a growth of 2,845 crore in the comparable period last yearThe shrinkage in total outstanding loans is despite the government’s ₹3 trillion guaranteed loan push to MSMEs
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Signalling the continuation of risk-aversion by banks along with a lack in credit demand, outstanding bank loans have shrunk between 5 June and 19 June, showed data from the Reserve Bank of India.
While total non-food credit shrunk by ₹1,927 crore in 14 days from 5 June, it had seen a growth of 2,845 crore in the comparable period last year. The shrinkage in total outstanding loans is despite the government’s ₹3 trillion guaranteed loan push to micro, small and medium enterprises (MSMEs). Lenders have been sanctioning and disbursing loans on easier terms to small businesses from 1 June.
Experts said that had it not been for MSME loans and loans to non-banking financial companies (NBFCs), outstanding credit would have shrunk even further as there is limited lending to other sectors. Outstanding loans decline when repayments are greater than fresh disbursements.
“Over the years, the funding to small businesses have been reducing and the government’s push has induced bankers to lend fresh funds to this sector. Moreover, owing to the pandemic and the ensuing lockdown, bank funding has been tepid, thus affecting credit growth," said Sanjay Agarwal, senior director, Care Ratings.
Public sector banks disbursed ₹21,029 crore in the first 18 days of June, showed data tweeted by the official account of the Ministry of Finance on 19 June. This is the closest comparison available with the RBI data between 5-19 June.
On a year-on-year (y-o-y) basis, outstanding non-food credit grew 6.03% to ₹101.5 trillion as on 19 June. According to a note by Care Ratings on 4 July, credit growth has continued to remain nearly at half the of what it was in 2019, owing to risk aversion in the banking system and weak demand.
“Though the lockdown was opened since 8 June, the metropolitan regions which accounts for around 63% of bank credit are still not open completely, hence credit pickup is weak," it said.
As the lockdown came into force on 25 March, segments of the economy came to a near-halt as supply chains were disrupted. Lenders who were functioning with minimal staff at branches found it difficult to source new loans as the existing demand slump intensified.
Analysts at Kotak Institutional Equities said in a note on 6 July that the impact of covid-19 on the overall slowdown in credit growth is difficult to quantify as the intensity of the pain on overall retail and SME segments is hard to gauge.
“Fiscal and regulatory support announced by the Indian government and RBI will stimulate marginal demand in select asset classes though the overall credit environment will be muted," it said.
That apart, while deposits grew 11% y-o-y to ₹138.67 trillion as on 19 June, it shrunk by ₹73,266 crore or 0.5% between 5 June and 19 June, showed RBI data.
“With loan growth having moderated to around 6% y-o-y, pressure on deposit mobilisation will ease, likely leading to a drop in deposit growth," said the Kotak Institutional Equities report cited above.
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