Money & Banking

Credit growth slows to 8.74% in HI

Our Bureau Mumbai | Updated on October 11, 2019 Published on October 11, 2019

But deposits have been relatively robust year-on-year at 9.53% up to September 27

Credit growth in the first half of FY2020 lagged deposit growth, probably indicating risk aversion among banks.

According to the Reserve Bank of India’s scheduled banks’ statement of position in India, credit growth in the first half slowed to 8.74 per cent year-on-year (y-o-y) up to September 27, 2019, (vis-a-vis September 28, 2018) against 12.38 per cent year-on-year growth up to September 28, 2018.

Deposit growth, however, has been relatively robust at 9.53 per cent y-o-y up to September 27, 2019, against 7.96 per cent y-o-y growth up to September 28, 2018.

That deposit growth is outstripping credit growth is underscored by the fact that in the reporting fortnight ended September 27, 2019, deposits grew by ₹1,85,564.89 crore, while credit expanded by ₹59,772.34 crore.

“Interestingly, in the first half (April-September) of FY2019, despite rising interest scenario, credit had expanded by ₹1,65,200 crore but contracted by ₹93,700 crore in H1 FY2020.

“This indicates that credit risk aversion continues to play centerstage, particularly for the NBFC (non-banking finance company) sector. We must do a proper introspection for further reviving the NBFC sector,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

With deposit growth outstripping credit growth, banks stepped up deployment of surplus resources in central and statement government securities. Investments in central and statement government securities saw a growth of 6.93 per cent y-o-y in the first half up to September 27, 2019, against 3.52 per cent y-o-y growth up to September 28, 2018.

Negative outlook

India Ratings and Research (Ind-Ra), in a report, observed that it assigned a negative outlook on the mid and emerging corporate (MEC) universe, reflecting its concerns over liquidity pressures likely to be faced by them on account of a broad-based macroeconomic slowdown exacerbated by the subdued access to credit from the banking sector and constrained ability of non-bank finance companies (NBFCs) to lend to this segment.

“While bank credit to the MSMEs remained stagnant between FY15 and FY19, the proliferation of NBFCs enabled MSMEs (micro, small & medium enterprises) to mobilise loans in a timely manner. However, as liquidity challenges in the NBFC space continue unabated, MSMEs are likely to face challenges in tying up funds to bridge the expected funding gap in FY20,” said Arindam Som, analyst, Ind-Ra

Referring to the Reserve Bank of India cutting the policy repo rate by a cumulative 135 basis points since February 2019, Moody’s Investors Service said this, coupled with the central bank’s efforts to strengthen the transmission of monetary policy to market interest rates (by directing banks to link their lending rates to policy rates), should support increased credit demand as authorities simultaneously work to alleviate stress in the NBFC sector.

Published on October 11, 2019
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