Growth in non-food credit slipped back to its mid-March level of 5.08% year-on-year (y-o-y) during the fortnight ended April 28, from 6.38% y-o-y in the previous fortnight, according to data released by the Reserve Bank of India (RBI).
Outstanding loans to companies and individuals dropped below the Rs 75-lakh crore mark to Rs 74.9 lakh crore.
The drop in loan growth is in line with the seasonal phenomenon of companies, mutual funds and non-bank finance companies repaying the short-term loans taken to meet their year-end requirements. Such loans are usually made in the last fortnight of a financial year and as such lead to a jump in the loans outstanding and credit growth for that fortnight.
Total bank credit rose 4.33% year-on-year to Rs 75.45 lakh crore, as against a 5.52% growth in the previous fortnight. Aggregate deposits with the banking system grew at the slowest pace y-o-y — at 10.33% — to Rs 105.09 lakh crore. Apart from lending, banks also see a surge in deposits during the last fortnight of the financial year as inflows from the government and its agencies enter the banking system.
The credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, fell 25 basis points (bps) from the fortnight ended April 14 to 71.8%. Credit growth has been subdued in recent quarters in an environment of muted private-sector investment. In addition, increased levels of disintermediation have also hurt demand for bank credit. Analysts expect retail loans to continue to support credit growth as corporate demand remains subdued.
However, overall credit growth is also expected to recover in the coming quarters.