Non-food bank credit up 10.3% as low base persists

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Mumbai | Updated: December 22, 2017 3:05:16 AM

Growth in non-food bank credit rose to 10.3% year-on-year (y-o-y) during the fortnight ended December 8 on the continuing effect of a low base.

sebi, reserve bank of india, credit deposit ratio, India Ratings, non food bank credit, demonetisation, corporate bond market, recapitalisation programmeBankers and sector analysts have in recent days made a case for measuring credit growth in terms of outstandings on loans as well as bonds, as better-rated corporates are borrowing increasingly from the money markets. (Reuters)

Growth in non-food bank credit rose to 10.3% year-on-year (y-o-y) during the fortnight ended December 8 on the continuing effect of a low base. Non-food bank credit had recorded 10% y-o-y growth in the previous fortnight and 6% growth in the year-ago period, when demonetisation was under way and credit disbursement suffered as banks put all their energies behind exchanging cash. According to provisional data released by the Reserve Bank of India (RBI), outstanding loans to companies and individuals stood at Rs 79.58 lakh crore on December 8, up from Rs 72.12 lakh crore on December 9, 2016. The net corporate bonds outstanding at the end of September was Rs 25.87 lakh crore, up 18% from Rs 21.95 lakh crore in September 2016, according to data released by Securities and Exchange Board of India (Sebi). Data from RBI showed that the net outstanding on commercial papers stood at Rs 4.74 lakh crore as on November 30, up 22.7% from Rs 4.09 lakh crore as on November 30, 2016. Taken together with the outstandings on corporate bonds and CPs, the total outstanding credit in the system adds up to around Rs 110.19 lakh crore, up 12% from Rs 98.16 lakh crore in the comparable period last year. Data on outstandings on corporate bonds for October, November and December and on CPs for December are not available yet.

Bankers and sector analysts have in recent days made a case for measuring credit growth in terms of outstandings on loans as well as bonds, as better-rated corporates are borrowing increasingly from the money markets. Conversely, bank deposit growth hit a multi-year low of 3.3% y-o-y as the effect of a high base kicked in. Banks had seen a deluge of deposits soon after demonetisation was announced. Bank deposits stood at Rs 109 lakh crore on December 8, up from Rs 105.5 lakh crore on December 9, 2016. The credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, rose 38 basis points (bps) from the previous fortnight to 73%. Analysts see a revival in demand over the next few quarters, and some expect the government’s recapitalisation programme for state-owned banks to stem the shift of borrowers to the bond market.

On Thursday, India Ratings wrote, “If the capital allocation is spread across public sector undertakings, and aided by additional support measures, it could moderate the pace of portfolio churn and credit market shift towards the bond market.” The rating agency added that renewed competition for market share may put pressure on yields on advances, at least for well-rated borrowers. “As a result, the primary corporate bond market is likely to report muted growth,” it noted.

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