Money & Banking

Bank credit contracts even as deposits surge till in April-Aug

Our Bureau Mumbai | Updated on August 28, 2019

Bank credit contracted by ₹48,792 crore in the financial year so far (up to August 16), even as deposits surged by ₹1,21,990 crore in the same period.

However, in the corresponding period last year, bank credit expanded by ₹33,664 crore.

In the year-ago period, deposits increased by ₹33,768 crore, keeping pace with credit growth.

Most of the decline in (non-food) bank credit in the financial year so far happened in the latest fortnight ended August 16, 2019. The outstanding bank credit declined by ₹41,479 crore in the reporting fortnight, as per the RBI’s Scheduled Banks’ Statement of Position in India.

State Bank of India, in a recent research report, said though slowdown in demand is a fact, there is a misplaced consensus that banks are not extending enough credit to help us navigate through the current slowdown.

“This is a false narrative as economic theory suggests a bi-directional causality between economic growth and credit offtake. Thus, a growth slowdown will percolate into a credit slowdown and not vice-versa,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

Given the tepid credit appetite in the economy, banks are deploying resources raised via deposits in Central government securities (G-Secs).

In the financial year so far, banks invested ₹1,74,993 crore in G-Secs. In the corresponding period last year, banks invested ₹1,74,343 crore in G-Secs.

In its Q1 FY20 earnings review, Edelweiss Securities (ESL) said that while the corporate provisioning cycle is behind, risks are rising in RAM (retail, agriculture and micro, small and medium enterprise) portfolio.

Published on August 28, 2019

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