Bank credit growth

Ban on 2 July 2021, the liquidity surplus in the banking system stood at around Rs.6.0 lakh crores.

1 min read . 18 Jul 2021Gopika Gopakumar

• As on 18 June, bank credit growth stood at 5.8% year on year

Bank credit growth improved to 6.1% year on year for the fortnight ended 3 July even as deposit growth declined, according to Reserve bank of India’s latest data. With gradual unlocking across states, bank credit increased by Rs0.9 lakh crore as compared with the previous fortnight. As on 18 June, bank credit growth stood at 5.8% year on year.

Retail and agriculture sectors continue to drive the overall credit growth while slower growth in industry and services segments restricted the overall credit growth.

According to Care Ratings, the bank credit growth continues to remain subdued which can be ascribed to risk aversion and continued parking of excess liquidity with RBI.

“The credit growth for FY22 is likely to remain in low double digit with growth largely expected in H2FY22 led by gradual expansion in the economic activities," it said.

The recent additional measures by Government to mitigate pandemic related stress are expected to improve credit offtake. However the downside risks include limited capex plans, partial restrictions in key states and concerns over the third wave, which may impact the industrial as well as service segments, the rating agency said.

Deposit growth on the other hand declined marginally to 9.8% during the fortnight ended July 2, 2021. In the previous fortnight deposit growth stood at 10.3%. That said deposit growth is still lower as compared with 11.0% y-o-y growth registered in the previous year. According to Care, the bank deposits have increased by around ₹14 lakh crore over the previous year and reached a new high since last 24 years.

As on 2 July 2021, the liquidity surplus in the banking system stood at around Rs.6.0 lakh crores. The liquidity surplus can be primarily attributed to deposit growth consistently outpacing credit growth. The excess liquidity is being parked with the RBI under the reverse-repo window earning just above 3% close to the savings deposit rate for banks.