Growth in non-food credit fell to 5.86% year-on-year (y-o-y) during the fortnight ended May 26 from 6.39% in the previous fortnight and 9.65% in the corresponding period a year ago, according to data released by the Reserve Bank of India (RBI). Outstanding loans to companies and individuals dropped to Rs 75.33 lakh crore from Rs 75.71 lakh crore a fortnight ago. Total bank credit rose 5.08% y-o-y to Rs 75.93 lakh crore, as against a 5.57% growth in the previous fortnight and 9.39% in the year-ago period. Aggregate deposits with the banking system grew 10.9% y-o-y to Rs 105.51 lakh crore. This is lower than the May 12 figure of Rs 106.42 lakh crore. The credit-deposit (CD) ratio of the banking system rose 28 basis points (bps) from the fortnight ended May 12 to 71.97%. The credit growth has been subdued in recent quarters in an environment of muted private sector investment. In addition, increased levels of disintermediation have also hurt the demand for bank credit.
Money raised by corporates through bonds and commercial papers (CPs) so far in 2017 added up to at least Rs 2.33 lakh crore, as against a net Rs 2.9 lakh crore disbursed by banks in non-food credit as of May 12. The numbers indicate the gap between borrowings from the money markets and those from banks narrowed nearly 80% over the corresponding period in 2016. According to RBI data, the net issuance of CPs, as of May 15, stood at Rs 1.05 lakh crore, while data from Sebi showed that net corporate bond issuance during the quarter ended March stood at Rs 1.28 lakh crore.
Analysts expect retail loans to continue to support the credit growth as corporate demand remains subdued. In a note dated June 5, Kotak Institutional Equities wrote, “Trends in the corporate loan growth appear anaemic with little signs of capex cycle returning. There are positive green shoots in select sectors such as renewables and roads, but the quantum remains small enough to make an impact on the overall loan growth.”
Banks themselves expect the growth to be driven by retail. “Looking ahead for FY18, we expect domestic loan growth to be around 15-16%, driven by 18-20% growth in the retail segment and about 15-20% growth in the SME segment,” ICICI Bank chief executive Chanda Kochhar told reporters after the bank’s Q4 results.