Non-food credit growth rises to 6.61% in February

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March 3, 2021 2:40 AM

As on February 12, outstanding non-food credit stood at Rs 106.28 lakh crore, showed data released by the Reserve Bank of India.

The rationale was to ensure adequate disclosures so that depositors could take ‘informed decisions’, on the lines of capital market regulator SEBI’s approach to investor protection.The rationale was to ensure adequate disclosures so that depositors could take ‘informed decisions’, on the lines of capital market regulator SEBI’s approach to investor protection.

The increase in non-food credit improved in February, rising to 6.61% year-on-year (y-o-y) for the fortnight ended February 12, up from 5.92% in the previous fortnight.

As on February 12, outstanding non-food credit stood at Rs 106.28 lakh crore, showed data released by the Reserve Bank of India (RBI). Commercial paper (CP) issuances fell during the fortnight ended February 15 to Rs 88,216 crore from Rs 89,041 crore during the previous fortnight. The CPs outstanding declined to Rs 3.99 lakh crore from Rs 4.11 lakh crore at the end of January.

Deposits with banks continued to grow and stood at Rs 147.81 lakh crore, up 11.76% y-o-y. The credit-deposit ratio was 71.9%.

Muted growth in lending to large industries, the housing sector and non-banking financial companies (NBFCs), restricted the increase in bank credit growth during the period under review. According to a recent note by Care Ratings, the three segments account for 27%, 14% and 7% respectively, of gross bank credit.

The RBI said in its ‘State of the Economy’ report that bank credit to large industries remained in contraction in December 2020, even as other segments showed signs of recovery. Several of these borrowers, particularly those with high ratings, are raising funds through bonds, debentures and other market-based instruments to take advantage of the prevailing low interest rate regime and also to retire past high cost debt. Loans for professional services were also in contraction. Growth in bank credit to NBFCs slumped to 8% in December 2020, as against a growth of 28% a year ago.

On Monday, Crisil said that in the current fiscal, bank credit is seen rising 4-5%. This is a revision of the rating agency’s projection from June 2020, when they had expected bank credit growth to be 0-1%. In FY22, Crisil expects bank credit to bounce back to 9-10% levels, driven by a pick-up in corporate credit, the government’s infrastructure push and a likely revival in demand. Retail lending, a major driver of bank credit in the past, is expected to slow down to 9-10% this fiscal before returning to the mid-teens growth of past years.

Declining competitive intensity may also work in banks’ favour, said Subha Sri Narayanan, director, Crisil Ratings. “Banks are expected to benefit from lower competition as non-banks, grappling with multiple challenges, see tepid growth. With deposit growth outstripping credit growth so far, banks would use the surplus liquidity to wrench credit market share away from some of the largest catchments of non-banks such as mortgages and new vehicle finance,” she said. Even during FY21, more than half of the incremental retail credit growth so far has come from mortgages, she said.

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