Good news for Modi govt: Non-food credit growth rises to near five-year high of 15.11%

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Mumbai | Updated: Nov 23, 2018 6:32 AM

The last time non-food credit grew faster was in November 2013, when it clocked 15.6% y-o-y during the fortnight ended November 13.

The growth comes off a relative weak base; in 2017 banks were lending cautiously as they were grappling with loan losses and demand from companies was muted.

The growth in non-food bank credit rose to a near five-year high of 15.11% year-on-year (y-o-y) during the fortnight ended November 9 from 14.78% y-o-y in the previous fortnight.

The last time non-food credit grew faster was in November 2013, when it clocked 15.6% y-o-y during the fortnight ended November 13.

The growth comes off a relative weak base; in 2017 banks were lending cautiously as they were grappling with loan losses and demand from companies was muted. Moreover, in 2016, demonetisation had impacted loan growth. Again, borrowings had shifted to the money markets — bond and commercial paper markets —in 2016 and 2017 since interest rates in those markets was lower.

With the rate cycle having tuned, bank funds today are turning out to be slightly cheaper for borrowers.
According to provisional data released by the Reserve Bank of India (RBI), outstanding loans to companies and individuals stood at Rs 90.50 lakh crore on November 9, a tad higher than Rs 90.34 lakh crore on October 26 and Rs 78.63 lakh crore a year ago.

Non-food bank credit had recorded a 9.02% y-o-y growth figure in the year-ago period. Deposits with the banking system grew 9.14% y-o-y to Rs 118.25 lakh crore as on November 9.

In recent quarters, growth has been recovering from record lows as the banking system shook off the impact of demonetisation and a bulk of lenders pivoted towards retail lending.
Bankers now sound increasingly optimistic about growth trends in credit offtake.

Also read: Govt struggles to meet GST collection target; indirect tax mop-up shortfall could be this much in FY19

State Bank of India (SBI) chairman Rajnish Kumar told reporters after the bank’s Q2FY19 results that the lender had seen a credit growth of 11.11% during the quarter. “We have returned to double-digit growth on the domestic front. Our credit growth is in line with the guidance for 10-12% credit growth for the financial year 2018-19,” he added.

Analysts agree that much of the growth in fresh loans is being driven by small-ticket retail loans in the absence of fresh investments by corporates. In a recent note, Kotak Institutional Equities (KIE) said the medium-term outlook for corporate loan growth remains weak, given the ongoing deleveraging of large corporate borrowers and lack of large-ticket capex.

A large amount of corporate bonds have moved to the money markets in the recent years. In FY19 (April-October) the corporate bond issuances totalled to Rs 2.31 lakh crore, 38% lower than the issuances to the tune of Rs 3.74 lakh crore in the comparable period in FY18. In October Rs 39,014 crore was raised by way of corporate bond issuances, 38% higher than the issuances of Rs 28,372 crore in September. Private placements accounted for nearly 98% share of the issuances (Rs 38,207 crore), while public issuances amounted to Rs 807 crore.

In terms of sectoral bifurcation of the corporate bond issuances, banking/term lending accounted for the major share or 47% of issuances followed by housing finance (27%) and financial services/ investments (14%).

Commercial paper(CP) issuances by corporates have risen in the current fiscal year. During April-October, commercial paper to the tune of Rs 15.33 lakh crore were issued, Rs 2.43 lakh crore (or 19%) more than the issuance of Rs 12.90 lakh crore in April-October 2017.

Banking/term lending accounted for the highest share of 19% of the CP issuances, followed by oil exploration (15%), financial services/investments (11%), fertilisers (11%), housing finance (11%) and power generation & supply (9%).

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