Non-food credit growth hit an at least six-year low of sub-6% — 5.99% year-on-year to be precise —in the fortnight ended December 9, data released by the Reserve Bank of India (RBI) showed. This marks a worsening from the 6.99% year-on-year growth clocked in the previous fortnight. With growth in food credit falling 8.6% y-o-y, non-food credit grew to R72.39 lakh crore.
Deposits with the banking system rose 15.9% y-o-y during the fortnight under review to Rs 105.91 lakh crore, which is 53-month high, and the same as in the previous fortnight. Banks have seen deposits surging since the government announced the withdrawal of high-value currency notes on November 8.
The credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, dropped marginally to 69.29% from 69.33% in the previous fortnight. The fortnight ended November 25 had seen the CD ratio recording a 3.37% fortnightly drop, the largest in over two years.
The continuing fall in the CD ratio is largely on account of a jump in the denominator, or a sharp increase in deposits with the banking system, and the depressed credit demand conditions.
Analysts expect weakness in credit growth to persist in the quarters ahead as the fallout of the withdrawal of high-value currency pans out. In a note dated December 14, brokerage Kotak Institutional Equities wrote, “We may have to reduce our credit growth assumptions for 2HFY17 and FY2018, especially in the retail and SME segments given the likely slowdown in demand for high-value items (cars, CVs, mortgage) as households in the ‘gray’ economy reassess their finances and spending capacity given a meaningful impact on their accumulated wealth and SMEs re-orient their businesses to pay higher taxes (excise, service and income). ”