Growth in non-food bank credit rose to 11.3% year-on-year (y-o-y) during the fortnight ended December 22 from 10.3% in the previous fortnight on the continuing effect of a low base. According to provisional data released by the Reserve Bank of India (RBI), outstanding loans to companies and individuals crossed the Rs 80-lakh crore mark and stood at Rs 80.3 lakh crore on December 22, up from Rs 72.12 lakh crore on December 23, 2016. Non-food bank credit had recorded a 5% y-o-y growth in the year-ago period, when the demonetisation exercise was in full swing and credit disbursement had suffered with banks engaged in exchanging cash. The net corporate bonds outstanding at the end of September was Rs 25.87 lakh crore, up 18% from Rs 21.95 lakh crore in September 2016, as per data released by the Securities and Exchange Board of India (Sebi). Data from RBI showed that the net outstanding on commercial papers stood at Rs 4.81 lakh crore as on December 15, up 21% from Rs 3.98 lakh crore as on December 15, 2016.
Taken together with the outstandings on corporate bonds and CPs, the total outstanding credit in the system adds up to around Rs 110.98 lakh crore, up 13% from `98.05 lakh crore in the comparable period last year. Data on outstandings on corporate bonds for October, November and December and on CPs for the latter half of December are not available yet. Bankers and sector analysts have in recent days made a case for measuring credit growth in terms of outstandings on loans as well as bonds as better-rated corporates are borrowing increasingly from the money markets. A paper titled ‘Credit disintermediation from banks – Has the corporate bond market come of age?’, written by RBI researchers and released by the RBI on its Mint Street Memos section, said the significant increase in inflows into mutual funds and their subsequent deployment is changing the scope of disintermediation.
“We find that there is a gradual shift in corporate borrowings from banks to mutual funds as reflected in the contraction in corporate spreads for near-investment grades; and a significant differential between the risk-free rate and the benchmark lending rate for banks, viz., marginal cost of funds based lending rate (MCLR), which has given rise to disintermediation of bank credit for quality corporates,” the paper said. Meanwhile, bank deposit growth improved to 4% y-o-y from 3.3% in the previous fortnight; this is, nevertheless, a multi-year low. The effect of a high base continues to manifest itself in deposit growth as banks had seen a deluge of deposits soon after demonetisation was announced.