After hitting a three-year low of 5.1% in the first half of FY21, the credit growth gained pace from November 2020 as the economy started opening up after pandemic-triggered lockdowns. In its annual report for the nine-months ended March 2021, the Reserve Bank of India (RBI) said the worst was over for the credit growth.
The positive momentum in credit offtake since November 2020 reflected recovery in economic activity, which was further supported by the cumulative reduction in the policy repo rate. Loan growth of banks was impacted during the first half of the fiscal 2021 (H1FY21) and remained at three-year low of 5.1% till October, 2020, but it improved to 5.6% on a year-on-year (y-o-y) basis till March 2021.
“A gradual pick-up in the economic activity during the second half of 2020-21 pulled up credit growth,” the RBI said on Thursday. Going forward, accommodative liquidity conditions and interest rates, several growth enhancing measures announced by the government and commencement of the mass vaccination drive are likely to nurture the recovery, which, in turn, is expected to have a favourable bearing on credit demand and supply, the report said.
Among bank groups, public sector banks registered a non-food credit growth of 3.1% in March 2021, compared to 3.4% a year ago. However, the credit extended by private sector banks grew by 9.6%, compared to 13.9% a year ago.
In line with RBI’s view, many lenders are expecting better credit growth in the current financial year (FY22) on the back of economic recovery forecasts. For instance, State Bank of India (SBI) hopes to grow its loan book by 10% in FY22, despite less than 5% credit growth in FY21. After declaring March quarter earnings, chairman Dinesh Kumar Khara said, “The bank may register a credit growth of around 10% in FY22 as the bank’s credit growth is normally 1% above India’s GDP.”
As per RBI’s annual report, banks’ credit-deposit ratio moderated to 72.4% in 2020-21 from 76.4% a year ago, largely reflecting the subdued credit demand conditions in the economy.
During FY21, the slowdown in banks’ credit growth was broad-based across all major sectors, except agriculture. According to data on the sectoral deployment of bank credit, the loan growth to agriculture and allied activities accelerated to 12.3% in March 2021, compared to 4.2% a year ago. Credit to industry decelerated marginally to 0.4%,compared to 0.7% a year ago.