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What the latest credit disbursal numbers show


  • The engines of growth are humming again; the rise in credit disbursement by banks in 2011-22, as well as in April 2022, reflects this. But what is fuelling this credit growth, and what could change the trend? Mint explores:

Credit disbursal data: What do they show?

With the Indian economy getting back onto a growth trajectory, credit disbursal numbers are on the rise again. The Reserve Bank of India’s annual report for 2021-22 shows that credit disbursal by scheduled commercial banks recovered pace in FY22. Bank credit grew at 9.6% in FY22, against 5.6% in FY21. The trend only seems to be improving, with gross bank credit in April 2022 growing 11.1% against 4.7% in April 2021. Non-food credit growth seems to have turned the corner—at 11.3% in April 2022 as against 4.7% in April—and credit offtake after August 2021 has been mostly positive.

Sector-wise, what’s the credit disbursal trend?

While agriculture and allied activities have maintained pace, the growth of credit to industry has accelerated. It had contracted the previous year as an outcome of the pandemic and low consumption demand. Credit to medium enterprises and retail loans has grown sharply. Revival in credit disbursal to capital-intensive sectors such as infrastructure augurs well for the economy as it will boost economic growth and have a multiplier effect on other sectors. Credit growth in services sector has also risen, indicating a bounce-back by contact-intensive sectors (though still below pre-pandemic levels).

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What about the credit-deposit ratio?

With CRR at 4% (which recently was raised to 4.5%) and SLR at 18%, banks were capable of lending 78% of their net time and demand deposits. But the credit-deposit ratio for FY22 was 72.2%, implying scope for improvement. Also not to miss is the fact that with the economy reviving, aggregate deposit growth for FY22 stands lower at 8.9% as against 11.4% in FY21.

What explains the rise in credit disbursal?

Manufacturing activity improved in FY22, with capacity utilization in the manufacturing sector touching 72.4% in Q3 from 68.3% in Q2. An overall rise in business activity has boosted industry-wide credit growth. Also, latest Central Statistics Office data shows gross fixed capital formation of 32.5% of GDP in FY22 as against 30.5% in FY21, reflecting the revival in investment demand. With credit disbursal on the rise for medium enterprises and personal loans, demand side economic indicators are also looking up.

What could affect credit growth?

Rising inflation prompted the Reserve Bank of India to raise key policy rates. It led to higher interest rates and higher production costs, narrowing margins of the industry. However, with consumption demand still to normalize, the industry cannot pass on rising costs. Also, supply chain disruptions on account of external developments such as Russia-Ukraine war and lockdown in China are likely to aggravate the situation.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.


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