The rate of growth in non-food credit fell to 6.2% year on year (YoY) for the fortnight ended July 30 from 6.51% in the previous fortnight. While loan growth has recovered from its sub-6% levels after the lifting of restrictions during the second Covid wave, it remains muted in an environment of weak economic growth.
Analysts at Care Ratings, in a note dated August 11, said credit growth continued to remain subdued as compared with the period prior to the pandemic and this could be ascribed to the risk aversion on the part of lenders and borrowers. Poor credit growth has resulted in continued parking of excess liquidity with the Reserve Bank of India (RBI).
As on July 30, outstanding non-food credit stood at Rs 108.33 lakh crore, showed data released by the RBI. Deposit growth slowed to 9.8% YoY from 10.65% in the previous fortnight. The value of bank deposits was Rs 155.49 lakh crore as on July 30.
Retail and agri-credit account for much of growth in new loans. “The lower credit off-take by industry and the services sector can be attributed to lower borrowing by businesses as good quality borrowers have shifted to capital markets (corporate bond issuance was higher by 27% in June 2021 as compared with issuances in May 2021 as per provisional data from Prime Database), consequent to restrictions under the pandemic’s second wave,” Care Ratings said.
Even though FY21 was a bad year for corporate credit growth, banks maintain that the appetite for loans is improving with the normalisation of liquidity conditions. Sanjiv Chadha, MD & CEO, Bank of Baroda, told FE that the lender is seeing a fair bit of activity, particularly in the roads sector as also in terms of city gas projects and renewable energy. “Brownfield expansion is something we are seeing,” he added.
The utilisation of working capital limits, though increasing, continues to remain under pressure, State Bank of India chairman Dinesh Khara said earlier this month. “If we reckon our subscription to the CPs or commercial papers and the bond, then it (corporate credit growth) still looks a little reasonable, it shows some marginal growth, but the fact remains that when it comes to the pipeline, there are underutilised limits, almost about Rs 3 lakh crore,” Khara said.
Credit growth for FY22 is likely to remain in the low double-digits, with growth largely expected in the second half, led by a gradual expansion in economic activities, Care Ratings said.
