Non-food credit of banks shrank by 2.74% in April, data from the Reserve Bank of India showed. Outstanding non-food credit stood at R65.74 lakh crore as of May 1, sharply down from R67.62 lakh crore outstanding as of April 3 — a fall of R1.86 lakh crore in just a month. Given that credit disbursals slow down dramatically in the first quarter of a financial year, repayments are higher than disbursals. Further, as banks aggresively lend short-term loans in March to boost balance sheets towards the end of a financial year, such loans come up for repayment in April and May.
Indeed, in the fortnight ended April 3, banks disbursed R2.66 lakh crore of loans in the fortnight ended April 3, the highest fortnightly disbursal on record.
Both deposit and loan growth tend to jump towards the end of a financial year, as banks increase their efforts to boost their balance sheet size. Most of such loans disbursed are short-term working capital which are typically repaid within three months. The fortnight following the financial year end sees a fall in credit offtake.
Despite this contraction in outstanding loans of banks, y-o-y non-food credit growth was 10.72% as of May 1, slightly faster than 10.07% a fortnight ago. Deposits also grew at a faster pace of 12.31% to an outstanding of R89.11 lakh crore as on May 1 compared with a growth of 11.39% seen in the previous fortnight.