In India bank credit grows lowest in over 60 years

Wednesday 19th April 2017 06:43 EDT

Growth in bank credit in India in the year 2017 has turned out to be the slowest in over 60 years at 51 per cent, as state-owned banks burdened with bad loans struggled to find safe avenues to lend. Last time loans grew slower than when in 1953-54, when bank credit slowed down to 1.7 per cent. According to data released by the RBI last week, outstanding bank credit as on March 31, 2017, stood at £788.2 billion. A large part of the growth in lending has come in the last fortnight of the month when banks disbursed £31.6 billion.

Other than bad loans and corporate investment coming to a halt, bank credit growth was also constrained by demonetisation. Between October and December 2016, bank credit contracted by 2.3 per cent as against a 2.7 per cent growth during the same period last year. Besides bad loans, one of the biggest concerns for the RBI is managing the surplus liquidity with banks. While on one hand banks are seeing lower credit growth, on the other, their deposits continue to remain high, all due to demonetisation.

Banks this year, ended with a 11.8 per cent growth in deposits which now stand at £1,080.5 billion. Several banks feel that RBI is reluctant to intervene in the Forex market as this would add to the surplus liquidity in the system. A senior banker said that of the total credit growth during the current fiscal, half has come from home loans and a large part of the rest has been due to loans to the service sector. Most of the lenders are private banks and few large private banks. Ratings agency ICRA said, “With asset quality pressures, banks, especially the weaker public sector banks have been reporting a continuous de-growth in their net interest income over the five consecutive quarters of Q3FY2016 to Q3FY2017 mainly on account of slower credit growth, reversal of interest income recognised on NPAs.”

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