Non-food credit, or loans to companies and individuals, grew at 11.63% year-on-year — the highest since last April — in the fortnight ended January 8, 2016, according to data released by Reserve Bank of India (RBI) on Thursday.
As a result, total outstanding non-food exposure in the Indian banking system rose to over `69.8 lakh crore – a sequential rise of `0.7 lakh crore over the previous fortnight. With this credit has grown by over 11% (y-o-y) for three consecutive fortnights – a trend last seen way back in November, 2014. Deposits, continued to grow at a subdued pace rising by just 10.94% (y-o-y) to `92.77 lakh crore. Banks have been trimming deposit rates since October last year with most lenders paying close to 7.50-7.75% for one year term deposits. This is lower than the yields offered by small-savings schemes for matching tenures.
The continuing subdued growth in credit offtake can be partly attributed to companies shifting to the corporate bond and Commercial Paper markets for their borrowing requirements. Interest rates in the corporate bond market remain lower than those offered by banks. Between April and December, 2015, firms have mopped up close to Rs 3.41 lakh crore through the corporate bond market. At present, a AAA-rated public sector unit can issue ten-year bonds at a yield close to 8.25%.
RBI has reduced the repo rate by 125 bps in CY15 and banks have brought down their base rates by a maximum of 70 bps. The lowest base rate in the banking system as of now stands at 9.3% of State Bank of India (SBI) and HDFC Bank.