Non-food credit shrinks Rs 1.76 lakh crore despite credit push, lower repayments

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June 6, 2020 7:16 AM

State Bank of India (SBI) chairman Rajnish Kumar on Friday said that the bank has had to temper its expectation of a 12% growth in credit in FY21

Banks admit that previous forecasts of credit growth are going to fall flat this fiscal year.

Outstanding non-food credit in the banking system fell 1.7%, or by `1.76 lakh crore, between March 27 and May 22 to Rs 101.44 lakh crore, shows data released by the Reserve Bank of India (RBI). While there had been a Rs 1.68-lakh crore fall in loans outstanding even in the comparable period a year ago, the drop this year stands out in the light of the credit overdrive launched by the government and the loan moratorium which has resulted in a fall in repayments.

The ministry of finance said earlier this week that state-owned banks alone have sanctioned loans worth Rs 10,361.75 crore under the 100% emergency credit line guarantee scheme (ECLGS) to small enterprises. Bankers say that while credit is being sanctioned to businesses, their utilisation remains limited at a time when restrictions on movement are only just beginning to ease and there is existing inventory to be cleared. In other words, there is little demand for credit even as banks are flooded with liquidity.

The latest data shows deposits growing 10.66% year-on-year (y-o-y) to Rs 138.3 lakh crore while credit growth was a much slower 6.14% y-o-y during the fortnight ended May 22. The weak environment for credit has been around since FY20 and the spread of Covid-19 has only intensified risk aversion among lenders.

Banks admit that previous forecasts of credit growth are going to fall flat this fiscal year. State Bank of India (SBI) chairman Rajnish Kumar on Friday said that the bank has had to temper its expectation of a 12% growth in credit in FY21. “We had budgeted for a 12% growth in the loan book, but that seems unlikely in the current scenario. We believe it should be somewhere between 5% and 12%; the midpoint is 7-8% and that is where we should be,” he said.
Analysts do expect a pick-up in credit offtake in FY21 as enterprises and individuals facing cash flow issues arising from the lockdown could tap banks.

In a note dated May 20, Care Ratings said that the loan guarantee by the government for small enterprises and non-bank lenders could stimulate bank credit offtake. “Further, banks have been told to increase the working capital limits of borrowers by 10% which will help the SMEs in particular,” it said, adding, however, that the improvement may not be substantial, given the underlying risk aversion of banks and fears of worsening asset quality. Care expects bank credit growth for the year to range around 5-6%.

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