Reserve Bank of India says credit growth to remain subdued

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Published: April 10, 2020 2:40:43 AM

Meanwhile, credit growth to both agriculture and industry has moderated over the past five months. “Better transmission of monetary policy impulses to the credit market would remain a priority,” the central bank said.

The central bank attributed the low credit growth to “low momentum” and an unfavourable base effect.The central bank attributed the low credit growth to “low momentum” and an unfavourable base effect.

Amid major disruptions because of the Covid-19 pandemic, credit growth in India is expected to “remain modest, reflecting weak demand and risk aversion”, the Reserve Bank of India (RBI) said in its latest policy report on Thursday.

Credit growth in the banking system has been slow despite a slew of steps taken by the central bank to boost credit offtake. The year-to-date (YTD) credit growth between March 31, 2019, and March 13, 2020, stood at 3.64%, against 10.72% period a year ago.

Credit offtake in FY20 has remained muted, with non-food credit growth for the fortnight ended March 13 at 6.07% year-on-year (y-o-y), the lowest since May 2017.

The central bank attributed the low credit growth to “low momentum” and an unfavourable base effect. “The offtake during the fourth quarter (up to March 13) has been subdued as compared with the corresponding quarters of previous two years,” the report said. It added that the slowdown in credit growth has been spread across all bank groups, especially private sector banks. “Credit growth of public sector and foreign banks remained modest, even as there has been some uptick in credit by public sector banks in the recent period,” RBI said.

Around 63% of the incremental credit extended by lenders between March 15, 2019, and March 13, 2020, was provided by private sector banks.

Meanwhile, credit growth to both agriculture and industry has moderated over the past five months. “Better transmission of monetary policy impulses to the credit market would remain a priority,” the central bank said.

Many countries, including India, have put in place a lockdown to limit the spread of the highly contagious novel coronavirus. This has resulted in an economic slowdown, globally. The central bank noted that there will be a global recession in 2020. RBI, like its global peers, announced measures to mitigate the economic impact of the lockdown in India. Last month, RBI announced a 75-basis point repo rate cut. Several banks have since cut their marginal cost-based lending rate.

Despite these measures, credit growth is expected to be subdued due to limited economic activities as India grapples with the pandemic.

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