The growth in non-food credit rose to a two-month high of 6.71% year-on-year (y-o-y) during the fortnight ended June 23 from 6.63% in the previous fortnight, clocking a third straight fortnight of positive growth. The corresponding figure in the year-ago period was 9.33%. According to provisional data released by the Reserve Bank of India (RBI), outstanding loans to companies and individuals rose to Rs 76.06 lakh crore from Rs 76 lakh crore a fortnight ago. Total bank credit rose 6.03% y-o-y to Rs 76.64 lakh crore, as against a 5.95% growth in the previous fortnight and 9.01% in the year-ago period. Aggregate deposits with the banking system grew 11.13% y-o-y to Rs 106.06 lakh crore. This is higher than the June 9 figure of Rs 105.78 lakh crore. The credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, fell 13 basis points (bps) from the fortnight ended June 9 to 72.26%. The credit growth was subdued in recent quarters in an environment of muted private sector investment. In addition, increased levels of disintermediation have also hit the demand for bank credit. According to RBI data, the net issuance of CPs, as of June 15, stood at Rs 26,720 crore, while data from the Securities and Exchange Board of India showed that net corporate bond issuance during the quarter ended March stood at Rs 1.28 lakh crore. Analysts expect the phenomenon to continue. In a note dated June 30, brokerage Kotak Institutional Equities wrote, “The broad theme on disintermediation is likely to continue into FY2018, which would continue to hurt corporate loan growth.”
Kotak, however, added that according to market participants, a fair amount of lending has begun for better-rated corporates, where cash flows are relatively more predictable. The overall loan growth may continue to be driven by retail in days ahead. Growth in bank loans to individuals grew 13.7% y-o-y in May, slower than the 19.1% recorded in May 2016, according to RBI data.