A large decline in savings bank deposits and the lower pace of accretion of time deposits in Unlock 4 reveal household stress.
Apart from incremental bank credit growth losing its momentum in August 2020, deposit and credit growth witnessed large declines during the Unlock 4 regime, with the maximum decline in savings bank deposits. The consumer deleverage also declined in August, indicating the stress on household balance sheets, according to SBI Ecowrap.
A large decline in savings bank deposits and the lower pace of accretion of time deposits in Unlock 4 reveal household stress, the report reveals, adding that incremental bank credit – that increased in June & July by Rs 392 bn – declined in August by Rs 360 billion, mainly owing to the decline in credit to personal loans and infrastructure segments. Credit to NBFCs, however, jumped in August after 3 successive months of decline.
As per the report, the banking industry has been hit by the lockdown. Though operative in all the four lockdowns as a part of essential services, banking has congregated to a few activities.
“We analysed the trend of variations in deposits and advances during successive lockdowns and unlocks. The data was prepared based on certain assumptions. It is revealed that the deposits (savings, current and term) which increased to Rs 1.21 lakh crore in unlock 2 has declined significantly during unlock 4. The same story follows in the case of advances,” says Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
CONSUMER LEVERAGE ALSO DECLINED IN AUGUST
The estimates of the short-term consumer leverage (presented as sum of credit card, personal loans, advances against FD, shares, bonds outstanding, etc.), which had reached a peak in FY18 at Rs 1.56 lakh crore, declined significantly to Rs 1.29 lakh crore in FY19. During FY20, it has increased marginally to Rs 1.35 lakh crore, reflecting possibly consumer stress. However, the trend of consumer leverage is quite expected in FY21 (till now). The consumer deleveraging which had declined by whopping Rs 53,023 crore in Jun ’20 has improved to Rs 14,111 crore in Aug ’20.
“Now the question is how much of this consumer deleveraging is because of lockdown / lack of business and how much is because of consumer actually maintaining a discipline in consumer behavior? We believe this will be crucial in deciphering in which direction the asset quality of the banks is moving in FY21. Additionally, consumers are also vigorously using gold holdings on their household balance sheet by taking gold loans,” informs Ghosh.