Credit Growth in India

 Growth in non-food credit for the banking industry dropped to its lowest in at least three years in the fortnight ended July 17.

Non-food credit rose 5.81% year-on-year to Rs 101.33 lakh crore, according to data released by the Reserve Bank of India. This is the lowest since July 2017, when non-food credit growth was at 5.79%.

Credit growth remains low despite more than adequate liquidity with banks. Deposit growth continues to run higher than credit growth. For the fortnight ending July 17, deposit growth was at 10.8%.

Banks, however, remain reluctant to lend due to the uncertainty caused by the Covid-19 pandemic and the lockdowns imposed to curb the spread of the virus.

For the quarter ended June 30, most large banks reported slowing credit growth. India’s largest lender State Bank of India, on Friday, reported that its outstanding advances rose 6.6% to Rs 23.85 lakh crore in the first quarter. Similarly, ICICI Bank reported a loan growth of 6.5% year-on-year in the same period.

The slowdown in credit indicates a struggling economy, said Bank of America Securities in a report on Monday. “Declining credit flows point to a contraction in the economy due to the Covid-19 shock,” the research house said.

Bank of America Securities also assessed the incremental credit flow since the Covid-19 crisis began. The analysis showed a sharp drop in bank credit flows across periods:

• Between mid-March and July 17, 2020 credit flow is 36% lower than last year.

• Between end-March and July 17, 2020 credit contraction is 52.2% larger than 2019.

• Between end-April and July 17, 2020 credit contracted by Rs 50,800 crore in contrast to offtake of Rs 44,600 crore last year.

• Between end-May and July 17, 2020 credit flow contracted by Rs 2,500 crore in contrast to offtake of Rs 42,300 crore last year.

The report said high real lending rates, adjusted for core wholesale price index as a proxy for pricing power, still constrain a recovery beyond the Covid-19 shock. “While nominal MCLR (marginal cost based lending rate) has come off by 105 basis points since March 2019, on the RBI easing, real MCLR has jumped by 44 basis points, with core WPI inflation dropping to 0.8% in June from 2.3% in March 2019,” the report said.

Segment-Wise Data

The lower credit flow is visible in segments such as retail trade and lending toward non-banking finance companies, showed the monthly credit data.

Among loans to industries, only large companies saw a growth in outstanding loans in the first three months of the current financial year, according to available data.

Within the retail loans segment, personal loans and credit card outstanding are showing a contracti