Banks’ non-food credit growth marginally recovers to 9.76%

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Mumbai | Published: July 8, 2016 6:14:07 AM

The growth in non-food credit of banks marginally recovered to 9.76% in the fortnight ended June 24, compared with 9.14% in the previous fortnight, according to Reserve Bank of India (RBI) data released on Thursday.

The growth in non-food credit of banks marginally recovered to 9.76% in the fortnight ended June 24, compared with 9.14% in the previous fortnight, according to Reserve Bank of India (RBI) data released on Thursday. However, this was the second successive week where non-food credit grew in single digit.

Outstanding non-food credit in the banking system stood at Rs 71.55 lakh crore as on June 24, compared with Rs 65.19 lakh crore in the same fortnight last year — a rise of Rs 6.36 lakh crore. The rate of growth in deposits rose to 9.71%, against 9.63% in the previous fortnight.

With hardly any growth in project loan sanctions, the 9.76% credit growth is most likely a function of demand from the retail segment, something which the management of several large banks have lately spoken about as their focus area.

Another relatively bright spot for loan growth in recent months was the demand for work capital loans.

Meanwhile, companies have been moving their borrowings to the corporate bond market due to lower interest rates. In the first two months of the current fiscal, firms mopped up over Rs 1 lakh crore through the corporate bond market, followed by Rs 4.6 lakh crore in FY16, indicating a shift from bank borrowing.

In order to achieve monetary transmission by ensuring that lending rates stay sensitive to policy rates, the RBI has made it mandatory for banks to adopt the marginal cost of funds based lending rate (MCLR) as the benchmark for lending, instead of the base rate, from April 1. This has been done as despite a 125 bps cut in the repo rate in CY15, banks had brought their base rates down by a maximum of only 70 bps.

“Because of the MCLR, we already had a rate cut of 25-50 bps before the policy. As it (the rate cut in April) winds its way through the MCLR in the next few months, we’ll have more of a rate cut,” RBI governor Raghuram Rajan had said after announcing a 25 bps cut in the benchmark repo rate during the first bi-monthly monetary policy review for the current financial year, thereby exuding optimism on MCLR achieving the RBI’s objective of policy transmission and higher credit growth in the economy.

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