The growth rate could have been worse if almost 39 per cent of the annual bank credit was not disbursed in a fortnight of March 2020.
Even as RBI and the government tried hard to push bank credit in order to maintain adequate liquidity into the system, the growth of bank credit fell to a more than a 50-year low in FY20. The bank credit grew at a mere 6.1 per cent in the last fiscal, according to RBI data. The growth rate could have been worse if almost 39 per cent of the annual bank credit was not disbursed in a fortnight of March 2020. The growth rate till 13 March was 3.8 per cent.
In the fortnight to 27 March, the bank credit of Rs 2.3 lakh crore was disbursed, out of a total of Rs 6 lakh crore in the full year. A sudden spike in the bank credit was observed in the areas of non-food credit and loans, cash credit, and overdrafts.
Longer-than-expected slowdown and low animal spirits in the previous fiscal did not let the Reserve Bank’s efforts of lower policy rates to succeed. The central bank cut the repo rate by 135 basis points in straight five MPC meetings in 2019. Other efforts such as linking loans to external benchmarks for faster transmission of rate cut benefits also helped only little.
“Credit offtake during 2019-20 (up to March 13, 2020) was muted with non-food credit growth at 6.1 per cent being less than half the growth of 14.4 per cent in the corresponding period of the previous year. Both low momentum and unfavourable base effects were at work,” RBI said in its April’s Monetary Policy Report released yesterday.
Meanwhile, as soon as the economy started to release itself from the grip of slowdown and green shoots of revival started to appear, the coronavirus pandemic has put the last nail in the coffin’. Hereafter, credit growth is further expected to remain muted. Credit growth is likely to remain modest, reflecting weak demand and risk aversion, RBI added.