Money & Banking

Risk aversion, muted demand continue to weigh on wholesale credit growth

Our Bureau. Chennai | Updated on January 11, 2021

Credit offtake to corporates that remained subdued in the first half of fiscal 2020-21 was weak in the third quarter, too (up to November 2020), pointing to risk aversion and muted demand weighing on the outlook, according to the RBI’s Financial Stability report.

Wholesale credit declined by 1.67 per cent q-o-q in the September quarter and by a further 1.36 per cent in November (over September) across all bank groups. The decline was sharper in PSBs at 2.4 per cent in November against the 1.28 per cent fall for private banks.

From the corporates side, credit growth in respect of public sector undertakings (PSUs) was comparatively resilient during the pandemic, according to the RBI report. While wholesale credit for PSU entitiesdeclined by 1 per cent in November (over September), for non-PSU entities, it fell by a sharper 2.4 per cent.

Within the non-PSU companies, it appears that the deleveraging (q-o-q) was sharper at rating grades ‘AA and above’ during 2020-21 across both PSBs and private banks. This reflects a reversal from the position in March 2020 when a rush to access credit was observed in the early phase of the pandemic breakout, according to the RBI. For instance, in March, wholesale credit grew by 5.2 per cent and 7.68 per cent q-o-q for AA and above companies across private and PSBs,respectively. This growth turned to a negative 5.8 per cent and 6.7 per cent in the September quarter for the corresponding bank groups and further to negative 7.48 per cent in November for private banks.

Deleveraging also seems to have been led by large wholesale borrowers even as relatively smaller borrowers (loans size: ₹5 to ₹100 crore) continued to record sustained credit appetite, as per the RBI report.

The report states that while the asset classification standstill inhibits the true categorisation of assets, the early tilt is towards worsening. With stress tests pointing to a deterioration in asset quality of banks, early identification of impairment and aggressive capitalisation are imperative for supporting credit growth across various sectors, alongside pre-emptive strategies for dealing with potential NPAs.

Published on January 11, 2021

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