Credit growth, which has been muted for the past few quarters, is likely to pick up only after the real economy deleverages, says a Barclays report.
“Historically, credit growth has been accompanied by a pick-up in deleveraging as seen in 2005-07 and 2010-11. This is yet to happen, therefore, the lower growth rate,” British financial services company said in a report today.
It also attributed banks’ strengthening their credit standards from relatively lax levels for the lower credit growth.
It said the ‘base effect’ means that the loan growth required for a given level of economic growth is now lower than it was in the 2000s – i.e., the system now has a lower ‘normal’.
“Currently, credit growth is even below this ‘new normal’,” the report said, adding in the previous fiscal year, banks pulled back significantly but the capital position of the state-run banks alone was not responsible for the pull-back.
“Even state-run banks with relatively better capital positions have pulled back. Larger private sector banks did not accelerate growth, which they would have done had the public sector banks been letting go of good credit opportunities,” it said.
According to Barclays, a 16-17 per cent CAGR loan growth would be adequate to support an economic recovery over the next three years.
The report said the economy is seeing a slowdown in investment activity, credit and a corresponding slowdown in savings and deposits.
The current account indicates a surplus of savings relative to investment.
The current account, excluding gold, has been in surplus for the past one year. “This indicates a domestic savings surplus (over investment)- a surplus that is being parked in gold,” the report said.
In the banking system, the RBI has slowed reserve money growth and liquidity infusions below nominal GDP, thereby restraining deposit growth.