The bank credit growth moderated further to 5.5 per cent for the fortnight ended July 31, 2020 from 5.8 per cent in previous fortnight, in a month which saw further easing of restrictions imposed to contain the Covid-19 pandemic. The credit growth was in double digits (about 12 per cent) in same period last year.
According to Reserve Bank of India (RBI) data, outstanding credit rose by Rs 46,777 crore in a fortnight to Rs 102.65 trillion by July 31, 2020 as against a sharp contraction of about Rs 84,740 crore in previous fortnight (July 17, 2020).
Bankers said business conditions have been improving, but only incrementally. However, demand remains weak (for credit) and many people are repaying loans, some of of which are under moratorium.
Banks have stepped up disbursals to MSMEs under the emergency credit guarantee scheme. But it is expected to provide only gradual traction to credit growth in the coming months, said a senior public sector banker.
The banks continued to garner deposits at a fast pace in the fortnight with year-on-year growth of 11.1 per cent, up from 10.8 per cent in the previous fortnight. The pace of growth in deposits is at par with the trend in the same period last year. The outstanding deposits of the banking system stood at Rs 141.61 trillion at end of July 2020.
With the gap widening in the pace of deposit acceration and loan expansion, the credit to deposit ratio (C\D) has been falling every fortnight. The C\D ratio was 72.49 per cent by July 2020 end, down from 73.48 per cent in early June 2020, RBI data showed.
Flush with funds, banks have been aggressively reducing their deposit rates. Moreover, with a huge liquidity surplus in the system, the RBI has undertaken term reverse repo auctions to allow banks to park any excess funds with the RBI.