Business activity failed to pick up even as the country has started to gradually exit from the lockdown as was evident from bank loans contracting for the fourth straight week, latest data released by the Reserve Bank of India (RBI) showed.
Bank credit contracted by ₹28,683 crore for the fortnight ended May 22, the data showed. Deposits also shrank by ₹19,843 crore after surging by a massive ₹1.27 lakh crore in the previous fortnight.
In the current financial year, so far, the contraction in bank credit has been ₹1.48 lakh crore while deposits have shown growth of ₹2.63 lakh crore.
Loan demand remained weak despite the RBI reducing interest rates sharply since the lockdown was imposed. At end March, the RBI reduced the repo rate by 75 basis points (bps), and then again by 40 bps on May 22.
The repo rate now stands at 4%. The central bank has hinted that more rate cuts could be coming as RBI Governor Shaktikanta Das emphasised on the need for going ‘full throttle’ to revive consumption and investment.
Credit demand may rise
Bankers expect credit demand to pick up in the coming days as more borrowers avail themselves of the Centre’s full credit guarantee scheme through which ₹3 lakh crore will be extended, mainly to micro, small and medium enterprises.
They also said while loans have been sanctioned under the scheme from the beginning of this month, borrowers are yet to avail of the full disbursement as they wait for more economic activity to resume along with more unlocking.