Non-food credit growth stuck at 6.5% despite festive season onset

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October 26, 2021 1:30 AM

Loans worth Rs 109.51 lakh crore were outstanding at the end of the fortnight under review — the highest ever. Deposits grew 9.23% YoY to Rs 157.56 lakh crore as on October 8.

The launch of limited-period festive offers on retail loans, especially record-low interest rates on home loans, has given a push, too, to credit demand among small borrowers. Analysts expect this to drive recovery in loan growth.The launch of limited-period festive offers on retail loans, especially record-low interest rates on home loans, has given a push, too, to credit demand among small borrowers. Analysts expect this to drive recovery in loan growth.

Non-food credit growth was stuck at 6.53% year on year (YoY) during the fortnight ended October 8, lower than 6.75% in the previous fortnight, despite the onset of the festive season.

Loans worth Rs 109.51 lakh crore were outstanding at the end of the fortnight under review — the highest ever. Deposits grew 9.23% YoY to Rs 157.56 lakh crore as on October 8.

Bankers attribute the muted trend seen in credit growth through much of the last few years to a trend of deleveraging by corporates. In a recent interview, State Bank of India (SBI) chairman Dinesh Khara told FE that the corporate sector has deleveraged to the extent of about Rs 2 lakh crore and that has impacted credit growth.

Retail credit has been doing much of the heavy lifting for the banking sector. However, even within the retail segment, growth in vehicle loans has been hurt in recent months as a worldwide shortage of semiconductor chips hit vehicle production. Sumit Bali, group executive and head – retail lending, Axis Bank, told FE that in the new cars segment, demand is good, but the supply-side issues persist because of the chip shortage. “That’s creating a different kind of problem for us. When we spoke to people in the manufacturing industry back in July, they had said production should be normal in October-November. It is not looking like that,” he said.

The launch of limited-period festive offers on retail loans, especially record-low interest rates on home loans, has given a push, too, to credit demand among small borrowers. Analysts expect this to drive recovery in loan growth.

“With the onset of the festive season, bank credit is expected to improve further in the coming fortnights led by growth in the retail segment along with special festive offers announced by quite a few banks. This rise is expected to be supported with rate cuts by banks to push retail credit as several banks are offering loans at record low-interest rates ahead of the festive season,” analysts at Care Ratings said in a recent note.

In the meantime, the government is also making a push for public sector banks to lend liberally during the busy season. FE reported on October 20 that the banks have been asked to set targets of loans to be sanctioned during the district-wise outreach programme and join hands with fintech firms and non-banking financial companies to step up disbursement to small borrowers. Punjab National Bank has already moved in this direction, organising a credit outreach camp in Delhi where loans worth Rs 32 crore were distributed among 218 customers by member banks of the State Level Bankers’ Committee.

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