Fresh RBI data reveals that bank credit has grown in double digits for the first time since September 2016, driven by home loans and advances to traders and finance companies. Loan book of the banking sector stood at £809.6 billion as on December 22, 2017, an increase of 10.7 per cent from the same period a year ago. Commercially, banks have been lending to trade and to non-banking finance companies. Along with shrinking demand for credit, demonetisation also brought down interest rates sharply, resulting in large corporates replacing loans with borrowings by issuing debt.
Growth in the loan book of banks during the current fiscal has been £225.52 billion. In the same period last year, it was £6.77 billion. Bank credit stood at £809.6 billion over all, as on December 22. A break-up of the sectoral deployment of bank credit up to November-end shows that 40 per cent of the incremental loans went to services sector, including loans to trade and non-banking finance companies. Rating agency CARE said bank credit has grown faster this year leading to a strain on liquidity. “Credit growth to manufacturing and services for April-October are negative, while that to agriculture and personal loans segment is 7.7 per cent. For the year, we expect growth in credit to match that of deposits, with thrust being on retail sector.”
Growth in aggregate bank deposits has slowed to 4% mainly due to the impact of demonetisation wearing off. Last year in November, most of the currency in circulation had to be deposited in banks as 85% of notes were demonetised. With currency supply, improving most of these funds were withdrawn resulting in a drop in deposits growth. As on December 22, bank deposits stood at £10.88 billion a decline of £1.69 billion over the fortnight.