Why is the RBI worried about credit growth?


The growth of deposits has been steady, however. Analysts expect credit growth to remain weak over the next few months.

The country’s largest private sector lender, HDFC Bank, in its provisional figures for the second quarter of FY21, said it saw a 16% increase in advances, as well as a 20% growth in deposits by compared to a year ago.

Others, like IndusInd Bank, saw a 10 percent increase in deposits and a 2 percent increase in net advances over the same period.

YES Bank also said its deposits increased 15.7% to 1,35,815 yen crore, from 1,17,360 crore yen as of June 30, 2020, while loans and advances only increased by 1. 4%, to reach 166,854 yen crore, at the end of Q2 FY21.

Consumption recovery

Surprisingly, despite expectations of a recovery in consumption, Bajaj Finance also revealed that it only added 36 new lakh loans in the second quarter of this fiscal year, or about half of the 65 lakh new loans a year ago. year.

State Bank of India Chairman Dinesh Kumar Khara said the lender has had 6-7% credit growth so far, with growth reaching roughly 70-80% of pre-Covid levels -19 in some sub-segments.

For the fortnight ending September 11, 2020, bank lending increased 5.26% on an annual basis to 102.24 lakh crore while deposits increased 11.98% to ₹ 142.48 lakh crore, according to RBI data.

During the fortnight ended September 13, 2019, bank credit stood at 97.13 lakh crore and deposits at 127.22 lakh crore.

Sector deployment

More worryingly, data from the RBI on sectoral credit rollout revealed that growth in non-food bank credit slowed to 6% in August from 9.8% in August 2019, largely due to a slowdown in the appetite for credit in all segments, including agriculture, industry and services. and bad credit payday loans

“Personal loans continued to perform well, registering a growth of 10.6% in August 2020, compared to a growth of 15.6% in August 2019,” the RBI said, adding that within the sector, auto loans have registered a sharp increase.

An SBI Ecowrap report noted that according to RBI data, in August, with the exception of services and personal loans, credit to all other major industries declined.

“The problem is that aggregate bank credit increased in June and July by 39,200 crore yen, but in August it decreased by 36,000 crore yen, which is mainly due to a decline in personal loans and credit. to infrastructure segments. A good thing is that the NBFC credit draw turned positive after three months of contraction, ”he said.

Where credit has increased

Within industries, credit in leather and leather products, petrochemicals, glass and glassware, basic metal and metal products, vehicles and parts, construction and roads, and paper and paper products increased sharply.

But the growth of credit to all other industries has gradually declined.

Bankers said that with the moratorium on lending and economic uncertainty, there has been some caution in lending.

“When a client has no repayment capacity and has taken the moratorium on loans, he would not have an appetite for credit either and we would have to see how far a new loan can be extended”, noted a bank executive.

Banks expect retail consumption to increase in the upcoming festival season, however, and many have announced various offers.

A CARE Ratings report noted that data from the past five years indicates that incremental outstanding credit is generally low in the first half of the year and gradually turns positive in the second half of the year.

“Credit growth remains slow despite the availability of liquidity in the banking system as well as the planned rate cuts by commercial banks, leading to lower interest rates for new loans (reduction of interest rates by 127 points). base compared to August 2019), ”he said. , adding that overall bank credit growth is expected to remain slower in the near term.

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