Base effect to prop up credit growth in FY22

According to a study by Global Financial Integrity, an estimated $770 billion in black money entered India during 2005-2014, and nearly $165 billion in illicit money exited the country during the same period. Photo: MintPremium
According to a study by Global Financial Integrity, an estimated $770 billion in black money entered India during 2005-2014, and nearly $165 billion in illicit money exited the country during the same period. Photo: Mint
 2 min read . Updated: 14 Apr 2021, 12:39 PM IST Shayan Ghosh

Mumbai: Bank credit is likely to see stronger growth in FY22 compared to the last financial year, given the low base effect and nascent economic recovery.

Care Ratings said in a report that downside risks to the credit growth include lockdowns in key states impacting the industrial as well as the service segments. Another risk includes the ending of the Emergency Credit Line Guarantee Scheme (ECLGS) scheme, which had propped loans to small businesses, it said. However, the extension of the targeted long-term repo operation (TLTRO) scheme and onward lending norms could support growth.

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“The bank credit growth declined (as on 26 March 2021) compared to the last fortnight, however in absolute terms it increased by ₹5.8 trillion as compared with fortnight ended 27 March 2020 and by ₹1.5 trillion as compared with previous fortnight. However, the growth rate has been higher than the expected low single-digit growth anticipated earlier in the year," the report said.

According to the rating agency, bank credit growth stood at 5.6% and 6.5% during the last two fortnights.

“Though the interest rates for monthly fresh loans of scheduled commercial banks have reduced 107 bps from February 2020 to February 2021, the overall credit growth continued to moderate due to risk aversion and continued parking of excess liquidity with RBI," it said.

In addition, contraction in loans to large industries and slower growth in housing and non-bank financier segment restricted the overall bank credit growth, it added.

On the other hand, banks in India have crossed the milestone of ₹150 trillion in deposits, as inflows continue at a staggering pace. Deposits had touched the ₹100-trillion mark in September 2016 and had crossed ₹50 trillion in February 2011. Outstanding bank deposits stood at ₹151.13 trillion as on 26 March, the last fortnight of the financial year, showed data released by the Reserve Bank of India (RBI). This translates into a growth of 11.3% from the same period last year.

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