Bank Credit Growth Shows Some Pick-up, Can It Sustain?

Bank credit growth shows some pick-up, can it sustain?

The pick-up in credit growth could be due to the festive season demand and a surge in demand for mortgage credit.

Growth in bank credit is picking up some pace, shows Reserve Bank of India (RBI) data. On a year-on-year basis, bank credit growth has grown by 6.7 per cent, the highest credit growth in at least three quarters. In the comparable period of previous year, the credit growth was 7.5 per cent.

For the fiscal year so far, bank credit has grown by 3.2 per cent as against 2.7 per cent in the comparable period in the previous year. In the last fortnight alone, bank credit grew by Rs 1.6 lakh crore, the data showed.

The pick-up in credit growth could be due to the festive season demand and a surge in demand for mortgage credit.

Bank credit had slipped to record low levels during the start of COVID-19 pandemic, especially to industries as demand fell, uncertainty prevailed and banks stepped up risk-aversion. The nationwide lockdown impacted supply chains. Since September, the trend has begun to reverse slowly with economy opening up and business activities returning to normalcy. Total bank credit growth outstanding, as on January 1, stood at Rs 107 lakh crore.

On the other hand, aggregate deposits in the banking system grew by 11.5 per cent from 9.8 per cent in the year-ago period on a year-on-year basis. In the financial year so far, the deposits grew by 8.5 per cent compared with 5.1 per cent in the year-ago period, and in the fortnight ending January 1, the growth was 0.7 per cent. Total deposits in the banking system as on January 1 stood at Rs 147 lakh crore.

However, it is too early to say whether this pick-up in credit growth will sustain. The Indian economy is projected to contract around 7.5 per cent in the ongoing fiscal year. Bank lending will reflect the pick-up in real economic activities.

In this context, the Union Budget 2021-22 is being looked at closely. There is a widespread expectation that the government will announce measures to stimulate demand and will recapitalise banks to prepare them to push credit to productive sectors.

In a slowing economy, banks are worried about further loan defaults from vulnerable sectors such as small and medium sized industries.

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