One key
parameter that is closely watched by economists and analysts to signal growth
in the economy is the growth of non-food credit. The needle refused to move
even as the government tried nudging banks to increase lending.
The fact that
the effect of demonetisation and poor implementation of Goods and Service Tax
(GST) is diminishing is visible in the non-food credit growth. Data released by
Reserve Bank of India (RBI) shows loan growth of banks has hit a three-year
high in November. Credit offtake had touched multi-decade lows in the past year
as banks focused their energy on recovery and ‘managed’ their non-performing
assets (NPAs). Credit growth was below 5 percent in February 2017.
Another
important feature is that the credit growth rate has outpaced that of deposit
growth. While deposit growth as of fortnight ended November 10 was 8.1 percent,
credit grew at 8.6 percent.
Since October,
the trend in growth in loans to large corporates has turned positive after a
contraction for more than a year. Bank loans, including procurement credit and
loans to individuals, farmers and businesses, rose 9.64 percent year-on-year
(YoY) as compared to 6.6 percent growth in the same period in 2016 and 9.3
percent in 2015.
Non-food
bank credit witnessed double-digit growth for the first time in 15 months,
rising 10 percent YoY, during the fortnight ended November 24.
In his credit
policy statement, RBI Governor Urjit Patel had said that "There has been
some pick-up in credit growth in recent months... Recapitalisation of public
sector banks may help improve credit flows further."
While overall
the numbers look bullish, the devil is in the details. Sectoral data released
by the central bank with a lag of two months shows that as of September 29,
credit to ‘industry’ fell by 0.4 percent on a YoY basis. The first six-month
data shows that credit to industry shrank by 1.5 percent. Retail credit again
helped save the day with a growth of 17.33 percent. Mortgage and unsecured
loans also posted strong growth.
Post the recent
policy announcement, various reports have quoted bankers saying the credit
offtake has started picking up. Banks’ credit growth is nowhere close to their
prime and still are not running on all engines. A boost to credit growth can only
be possible if corporate lending picks up, but that is easier said than done.
The banking
sector has lost market share to non-banking finance companies (NBFC) and the
fast-growing bond market. Better rated companies prefer to use the bond market
as the process is transparent, easier and faster as compared to availing a bank
loan. NBFCs are preferred as they are faster and easier despite the fact that
their loans are costlier than those of banks.
While bank
credit has shown signs of improvement, they have a long way to go to reach
their prime. Though capitalization would make the banks bolder they will have a
tough time convincing and bring back disgruntled customers who had to take
high-cost loans from NBFC at their time of need.
Source : Moneycontrol
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