Despite the government’s credit-driven stimulus to help tide over the impact of COVID-19, bank credit growth hit a new low for the second year in a row in FY21 at 5.56% — the lowest in 59 years, according to an analysis by SBI Research.
Credit offtake in FY21 at ₹109.51 lakh crore was lower than FY20’s when it had clocked a growth of 6.14% — which was the slowest in as many as 58 years. It was way back in FY1962 when credit growth was slower than this at 5.38%.
Only about ₹3 lakh crore of the ₹20 lakh crore stimulus amounting to 11% of the GDP was actually used in fiscal stimulus to fight the impact of COVID-19 as the remaining amount was through credit support with no impact on the fiscal numbers of the government.
However, system-wide deposits jumped almost 11.4% in the year to ₹151.13 lakh crore, from 7.93% growth in FY20, SBI Research said, citing RBI data.
According to the SBI Research report, FY08 had the best credit and deposit growth on record — 22.4 % growth in deposits and 22.3 % jump in credit offtake.
The next two years it fell to around 17 % but inched back to 21.5 % in FY11. Since then, credit demand has been on a steep southward curve, hitting a 58-year low in FY20 and a still lower 59-year pit in FY21.
The report said credit offtake was hit hard by the pandemic in the first half when the economy was almost closed, and saw some improvement in H2 registering a growth since November.
“But despite this, overall credit growth has plunged to a 59-year low of 5.56 % in FY21, compared to 6.14 % in FY20,” said the report.
The key lockdown months of April and May 2020 was the major reason for the spike in deposits, which grew 11.4 % despite a steep fall in interest rates, as against 7.93 % in FY20 when it stood at ₹135.71 lakh crore.
Deposit growth in FY20 was the slowest since FY18, when it had increased by 6.21 %.
In FY19, credit offtake was 13.29 % while deposits grew by 10.04 %.
The report said April and May 2020 saw huge monthly incremental increase in time deposits as people had less options to spend due to the lockdowns.
The report added that this year too there could higher flows in time deposits as most of the states have imposed partial lockdowns.
The risk aversion was so high among both banks and borrowers that they refused to borrow despite interest rate plunging by 107 basis points (bps) during the year — precisely between February 2020 and February 2021.
Banks’ risk aversion had them parking trillions of excess liquidity with the RBI.
When viewed against the backdrop of a plunge in incremental credit flow to the system in FY20, the tepid credit offtake in FY21 growth is starker.
In FY20, incremental credit flow from banks, bonds, and commercial papers plunged 64 % to ₹6.04 lakh crore from ₹15.82 lakh crore in FY19, on account of the slowdown and high level of risk aversion among bankers.