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Non-food bank credit growth decelerated to 6 per cent in August 2020 from 9.8 per cent in August 2019 due to slowdown in credit appetite across segments, including agriculture, industry, services and personal loans.
According to the Reserve Bank of India’s latest ‘Sectoral Deployment of Bank Credit’ report, credit growth in the agriculture and allied activities slowed to 4.9 per cent in August, compared with a growth of 6.8 per cent in the same period last year. Credit growth to industry decelerated to 0.5 per cent from 3.9 per cent in the same period last year.
Credit to industries in food processing, petroleum, coal products and nuclear fuels;leather and leather products;wood and wood products; and paper and paper products registered an accelerated growth in August compared with the growth in the corresponding month of the previous year. However, credit growth to industries regarding beverage and tobacco; construction;infrastructure; rubber plastic and their products; chemical and chemical products; glass and glassware; and ‘all engineering’ have decelerated/contracted, the RBI said.
Services sector
Credit growth to the services sector decelerated to 8.6 (13.3 per cent) Within this sector, credit to ‘computer software’, ‘trade’ and ‘tourism, hotels and restaurants’ registered and accelerated growth in August 2020 vis-à-vis the growth in the corresponding month of the previous year.
Personal loans growth slowed to to 10.6 per cent (15.6 per cent). Within this sector, vehicle loans registered an accelerated growth in August compared with the growth in the corresponding month of the previous year. Data on sectoral deployment of bank credit have been collected from select 33 scheduled commercial banks (SCBs), accounting for about 90 per cent of the total non-food credit deployed by all SCBs, for August 2020.
Improvement in retail
As per the latest discussion that Motilal Oswal Financial Services Ltd (MOFSL) analysts had with banks, momentum in retail growth is picking up with some segments like tractors, 2Ws (2 wheelers), gold disbursements and affordable housing seeing the fastest improvement.
“Corporate growth, however, remains tepid with disbursements only toward working capital loans and capex financing remaining weak. Overall, we believe recovery in high ticket retail loans, CVs and corporate demand would be much slower. In the near term, banks would remain cautious in their loan growth strategy with higher focus on collections,” said MOFSL analysts, Nitin Aggarwal, Himanshu Taluja, Alpesh Mehta and Yash Agarwal.
The analysts observed that continued monetary easing has resulted in lending rates plunging to all-time lows.
“We believe large banks with strong liability franchise will continue to gain incremental market share and are better placed to tackle the margin pressure by reducing TD (term deposit)/SA (savings account) rates,” they added.
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