Non-food credit growth ebbs to two-decade low of 4.76%

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Mumbai | Published: February 16, 2017 5:27:38 AM

The growth in non-food credit slowed to an at least two-decade low of 4.76% year-on-year (y-o-y) during the fortnight ended February 3, according to data released by the Reserve Bank of India (RBI).

The growth in non-food credit slowed to an at least two-decade low of 4.76% year-on-year (y-o-y) during the fortnight ended February 3, according to data released by the Reserve Bank of India (RBI).

This marks a worsening from the increase of 5.18% clocked in the previous fortnight. The outstanding non-food credit in the system grew to R73.72 lakh crore at the end of the fortnight.

Food credit as on February 3 stood at Rs 1.07 lakh crore, 0.4% lower than the year-ago period. Overall bank credit rose 4.68% y-o-y to Rs 74.79 lakh crore, as against a 5.14% growth in the previous fortnight.

Deposits with the banking system rose 13.58% y-o-y during the fortnight under review to Rs 105.62 lakh crore. The number is marginally higher than the previous fortnight’s figure of Rs 104.95 lakh crore.

Banks had been seeing a steady rise in deposits since the government announced the demonetisation of Rs 500 and Rs 1,000 notes on November 8. Some of these deposits have already begun to flow out of the system as the drop in deposits during the fortnights ended January 20 and December 23 suggests. Most banks expect around 40% of the deposits received after demonetisation to remain with them.

The credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, rose to 70.81% from 70.68% in the previous fortnight. The latest figure is nevertheless a near-seven-year low. The ratio had been falling since demonetisation as banks sat on piles of deposits in an environment of weak credit demand.

Lenders have been banking on interest rate cuts to push demand for credit. However, the RBI’s February 8 decision to change its stance to ‘neutral’ from ‘accommodative’ may have signalled an end to the rate-easing cycle that began in January 2015.

The industry has relied on retail lending, which has been seeing growth rates in the mid-to-high teens in the past few years.

Bank credit to industry recorded negative growth on a y-o-y basis for the third straight month in December, dropping 4.3% to R25.79 lakh crore.

Arundhati Bhattacharya, chairman of State Bank of India, had told reporters on February 10, “In respect of the corporate loan book, the growth is very low and though we expect it to come up in Q4, we would like to be cautious. So, overall, we are not expecting to go above 6.5% in terms of loan growth for the full year.”

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