Retail, small biz loans aid credit recovery in September2 min read . Updated: 31 Oct 2020, 06:40 AM IST
- While bankers expect credit growth to pick up to 8% by March-end, rating agencies like Crisil say FY21 is likely to be a washout year
- On a year-on-year basis, bank credit rose just 5.8% in September, compared to an 8.2% growth in September 2019
Outstanding bank credit in September rose by ₹71,490 crore from the previous month, in sharp contrast to August when it had shrunk by ₹36,000 crore month-on-month.
However, on a year-on-year basis, bank credit rose just 5.8% in September, compared to an 8.2% growth in September 2019.
According to the Reserve Bank of India’s sectoral credit deployment data released on Friday, the jump in bank credit was driven by personal loans, services sector and agriculture and allied sectors.
Within personal loans, housing loans grew by ₹10,300 crore, and other personal loans grew by ₹12,400 crore from the previous month. Within the services sector, loans to non-bank lenders saw sequential growth of ₹5,800 crore to ₹8.02 trillion.
While outstanding corporate loans came down, loans to micro and small enterprises grew by ₹22,600 crore from the previous month, indicating much of the loans under the government’s credit guarantee scheme was deployed during the month.
“Incremental credit growth in September was significantly high at ₹71,500 crore, from a degrowth of ₹36,000 crore in August. This jump was visible across all segments, indicating that the pent-up demand in manufacturing was widely felt. The growth in credit to MSMEs was particularly heartening," said Soumya Kanti Ghosh, chief economist, State Bank of India.
In May, the government had launched the ₹3 trillion Emergency Credit Line Guarantee Scheme, offering 100% credit guarantee to all MSMEs impacted by the slowdown due to the coronavirus pandemic.
The government claims banks have sanctioned loans of about ₹1.86 trillion to 5 million business units under the scheme. More than 2.7 million MSME units received loans worth ₹1.32 trillion till 29 September.
Banks have been taking various measures, including festive season offers, to revive credit growth, currently at a multi-decadal low owing to the pandemic. The government has also directed banks to implement the compound interest waiver for loans up to ₹2 crore for the six-month loan moratorium period ended 31 August. The move, which comes ahead of the festive season, is likely to spur consumer demand.
While bankers expect credit growth to pick up to 8% by March-end, rating agencies like Crisil say FY21 is likely to be a washout year.
Crisil expects the banking system’s credit growth to plummet to a multi-decadal low of up to 1% in FY21.
“We expect the retail segment to grow in the second half as there is more clarity over the one-time restructuring issue. SME lending could taper off as the guarantee scheme is over. Bank loans to NBFCs (non-banking financial companies) could also see a pickup," said Madan Sabnavis, chief economist, Care Ratings Ltd.