With slowdown in the economy taking a toll and the central bank policy rate cut not fully getting transmitted to productive sectors, non-food credit growth in the banking system has declined to 8.5 per cent as of January 2020, as against 13.1 per cent in the same period last year. While most of the sectors — including industry, agriculture and housing — showed a fall in credit growth, credit card outstandings registered a 31.6 per cent growth.
According to the Reserve Bank of India’s (RBI) latest sectoral data, total non-food credit outstandings amounted to Rs 89,00,136 crore as of January 2020. Credit growth to agriculture & allied activities decelerated to 6.5 per cent at Rs 11,53,386 crore in January 2020 from 7.6 per cent in January 2019.
The RBI had slashed the repo rate by 135 basis points (bps) in 2019, but the cut was not fully transmitted into productive sectors. The one-year median marginal cost of funds-based lending rate (MCLR) declined by just 55 bps during February 2019 and January 2020. The weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks declined by only 69 bps and the WALR on outstanding rupee loans by 13 bps during February-December 2019.
The RBI data shows that credit growth to industry decelerated to 2.5 per cent (Rs 28,17,525 crore) in January 2020 from 5.2 per cent in January 2019. With new investments yet to take off, loan offtake growth by the large industry segment declined to 2.8 per cent at Rs 23,37,662 crore from 6.1 per cent a year ago. Within industry, credit growth to paper & paper products, rubber plastic & their products and construction accelerated. However, credit growth to textile, food processing, chemical & chemical products, basic metal & metal products, all engineering and infrastructure decelerated/contracted. The medium industry showed only 2.8 per cent credit growth against 7 per cent a year ago.
The data further said credit growth to the services sector decelerated to 8.9 per cent (Rs 24,31,975 crore) in January 2020 from 23.9 per cent last January. However, personal loans grew by 16.9 per cent in January 2020, the same rate as January 2019.
Significantly, credit card outstandings shot up by over Rs 26,000 crore to Rs 1,10,864 crore, showing a growth of 31.6 per cent as against 29 per cent a year ago.
RBI Governor Shaktikanta Das had recently said the overhang of non-performing assets (NPAs) “remains relatively high which is weighing on credit growth”. “In view of subdued profitability and deleveraging by certain corporates, risk-averse banks have shifted their focus away from large infrastructure and industrial loans towards retail loans,” Das had said.
Rating agency Crisil said the prolonged slowdown in bank lending may be bottoming out this fiscal, with gross credit offtake set to rise 8-9 per cent on-year in FY21, a good 200-300 bps over the 6 per cent likely growth in FY20.
“A gradual pick-up in economic activity, continuing demand for retail loans, and strong growth in lending by private sector banks should drive the uptick. As for this fiscal, some growth momentum is expected in the fourth quarter, after a subdued three quarters – due to traditional fiscal year ending growth. The RBI’s move to exempt banks from cash reserve ratio requirement for incremental credit to certain sectors for up to five years will also support lending. Incremental net domestic credit this fiscal up to December 2019 is just a fifth of what it was a year ago,” Crisil said.
The RBI had recently announced Rs one lakh crore of long-term repo operations (LTRO) to boost credit growth. Analysts said LTRO is a bold measure which would help banks kickstart credit growth and help them reduce their cost and improve margins.
LTRO has led to a rally in the short end of the gilt yield curve post monetary policy in February. The RBI has been increasingly focusing on improving monetary transmission to boost bank credit to productive sectors using unconventional measures.