Non-food bank credit clocked double-digit growth for the first time in 15 months, rising to 10% year-on-year (y-o-y), during the fortnight ended November 24, supported by a low base effect. Non-food bank credit had recorded 9% y-o-y growth in the previous fortnight and a growth of 7% y-o-y in the corresponding fortnight a year ago, when the demonetisation exercise was under way and credit disbursement had suffered, owing to banks being completely preoccupied with exchanging cash. According to provisional data released by the Reserve Bank of India (RBI), outstanding loans to companies and individuals stood at Rs 78.87 lakh crore on November 24. The net corporate bonds outstanding, as 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 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 November 15, up 17.5% from Rs 4.09 lakh crore in the previous year.
Taken together with the outstandings on corporate bonds and CPs, the total outstanding credit in the system adds up to around Rs 109.55 lakh crore, up 12% from Rs 97.74 lakh crore in the comparable period last year. Data on outstandings of corporate bonds in October and November are not yet available yet, and the same is the case for CPs in November. 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.
Conversely, bank deposit growth hit a multi-year low of 3.5% y-o-y as the effect of a high base kicked in. Banks had seen a deluge of deposits soon after demonetisation was announced. Bank deposits stood at Rs 108.47 lakh crore, as on November 24, 2017, up from Rs 104.85 lakh crore on November 25, 2016. The credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, rose 24 basis points (bps) from the previous fortnight to 72.71%. Some analysts say the revival in credit growth is attributable in part to increased demand for working capital. In a recent note, Nomura wrote that while demand for capital expenditure continues to be muted, the favourable base effect will persist in the months ahead.
“Overall, we believe y-o-y credit demand will pick up in the next three-four months, due to a favourable base caused by demonetisation,” the investment bank wrote. “The restocking post GST is reflecting in trade-related credit offtake as well, but with no pick-up in industrial credit growth, we expect overall credit growth including bonds/CP to remain at about 10% in FY18-19.”