Non-food credit grows 5.12%; total bank credit rises 4.36%

By: | Published: March 31, 2017 3:58 AM

Non-food credit grew 5.12% year-on-year (y-o-y) during the fortnight ended March 17, with outstanding loans to companies and individuals at `75.1 lakh crore, according to data released by the Reserve Bank of Indi

Credit growth remained subdued in recent quarters in an environment of muted private sector investment.

Non-food credit grew 5.12% year-on-year (y-o-y) during the fortnight ended March 17, with outstanding loans to companies and individuals at `75.1 lakh crore, according to data released by the Reserve Bank of India (RBI). This is an improvement over the lifetime-low y-o-y growth of 4.34% in non-food credit recorded during the previous fortnight.

Total bank credit rose 4.36% y-o-y to `75.66 lakh crore, as against a 3.68% growth in the previous fortnight, the lowest in at least 58 years.

Credit growth remained subdued in recent quarters in an environment of muted private sector investment. In addition, increased levels of disintermediation have also hurt demand for bank credit.

Money raised by companies through commercial papers (CPs) and corporate bonds has touched `3.7 lakh crore so far in FY17, higher than the net non-food credit disbursed by banks, which is approximately `2.35 lakh crore.

The difference between the two modes of lending has risen almost 160% to `1.35 lakh crore from `0.52 lakh crore in FY16.

Aggregate deposits with the banking system stood at `105.42 lakh crore, up 13.02% y-o-y. While banks had seen a steady rise in deposits since demonetisation, some of these deposits have already begun to flow out of the system.

The credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, rose to 71.77% from 71.29% after seeing a dip in the previous fortnight.

Analysts believe that even if private investment picks up, banks will be unlikely to gain from it. In a note dated March 29, Nomura wrote, “We believe the current recovery cycle will be less credit-intensive and we expect system growth to remain at around 9-10% CAGR (compound annual growth rate) over FY17-19F, with corporate loans growing at just 6-7% CAGR and retail book (ex mortgages) growing at +15% CAGR.”

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The note said power, metals and textiles contributed more than 30% of the incremental credit growth between FY09 and FY14. With no fresh projects and the likelihood of deleveraging and write-offs in these sectors, banks’ loan books are set to remain flat in medium term, delaying a meaningful revival in the industrial credit demand.

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