Non-food credit growth slips below 6%: RBI data

Loan growth is slowing across financial markets. Growth in non-food credit slipped back below the 6% mark to 5.92% year-on-year (y-o-y) during the fortnight ended January 29 from 6.35% y-o-y in the previous fortnight. As on January 29, outstanding non-food credit stood at Rs 106.17 lakh crore, data from Reserve Bank of India (RBI) showed. Deposits with the banking system continued to grow at a fast clip and stood at Rs 147.98 lakh crore, up 11.06% y-o-y. The credit-deposit ratio was 71.75%.

The total bond issuances in January amounted to Rs 60,942 crore, 4% lower than in December, 2020 and and 27% lower year-on-year, data from Prime Database showed. Banking and term -lending entities accounted for the highest 54% share in total debt issuances. Commercial paper issuances in January fell to Rs 1.38 lakh crore, 26% lower y-o-y .

Most large banks have been saying that they are seeing a pick-up in economic activity and expect that to translate into higher loan growth, largely on the back of housing loans. At the same time, the largest lender State Bank of India (SBI) has moderated its growth expectation for FY21 to 7% from 8-9% earlier. It expects to return to double-digit growth only by the second half of FY22.

Chairman Dinesh Khara said after SBI’s Q3 results that corporate loan growth is subdued even now. “We would see growth coming from the public sector entities’ capital expenditure. That is why I have indicated credit growth more in the range of 7%, considering the fact that only two months are left for the financial year. So, earlier we had indicated 8%, which is now deferred to 7% credit growth,” he said.

For both public sector banks (PSBs) and private banks, much of the fresh lending in the last few quarters has been in the government segment as also in gold loans. The emergency credit line guarantee scheme (ECLGS) has also helped step up loan sanctions to small enterprises.

At the same time, banks are exercising greater caution while lending, which may also be keeping growth restricted at the current levels. Rakesh Jha, chief financial officer, ICICI Bank, recently told analysts that the bank has tightened some of the parameters for lending based on the current environment. “The entire focus is to ensure that we get a set of customers who we are comfortable with in terms of return of capital and that’s the philosophy across all portfolios,” he said.

Banks’ investments have been on the rise as many companies are preferring to raise money through the market route rather than through loans. According to a report by Care Ratings, banks’ credit investments increased by 4% in November, 2020 compared with the year-ago period (8.4% y-o-y growth in November, 2019) aided by the long term repo operations (LTRO), targeted long term repo operations (TLTRO) and partial credit guarantee (PCG) schemes.

Bonds and debentures accounted for the highest share in banks’ credit investments at 69.4% in November, 2020, followed by financial institutions and commercial papers (CPs) at 16% and 10.3%, respectively, and mutual funds at 4.3%.