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Recapitalisation of public sector banks (PSBs), the ongoing improvement in their financials, and resolution of stressed assets under the Insolvency and Bankruptcy Code are expected to improve bank credit offtake, according to Reserve Bank of India’s latest monetary policy report.
This is also expected to support investment and aggregate demand in the economy, the report said. On February 20, the government had approved ₹48,239-crore capital infusion into 12 PSBs.
The RBI report observed that credit offtake continued to be buoyant with some moderation in interest rates on new loans since February 2019.
In response to the 25 basis point (bps) reduction in the policy repo rate on February 7, some banks have reduced their lending rates under the marginal cost of funds-based lending rate (MCLR) system. One basis point equals one-hundredth of a percentage point.
Following the reduction in policy rate by 25 bps in February, 38 banks have reduced their one-year MCLR so far (till March-end 2019) in the range of 1-106 bps. However, 24 banks, mostly foreign lenders, increased their MCLRs in the range of 5-113 bps during the same period, the report said.
While the median term deposit rate (all maturities) of banks declined by 3 basis points, the one-year median MCLR declined by 5 bps during the easing phase so far.
The year-on-year (y-o-y) growth was higher at 14.4 per cent (up to March 15, 2019) from 11 per cent a year ago. Of the incremental credit extended by scheduled commercial banks as on March 15, 47.4 per cent was provided by PSBs, 48.9 per cent by private sector banks, and 3.7 per cent by foreign banks. The report said incremental credit flows are also getting increasingly broad-based, with services accounting for the highest share (at 45 per cent in February 2019 against 35 per cent in February 2018), against personal loans (at 31.9 per cent in February 2019 against 48.2 per cent in February 2018).
Credit growth to industry, which turned positive in November 2017 after more than a year-long contraction, improved to 15.2 per cent in February 2019 against 4 per cent in February 2018. The share of credit to agriculture, however, moderated to 7.90 per cent in February 2019 against 12.8 per cent in February 2018.
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