Mumbai: Muted economic growth, lower working capital requirements and risk aversion among lenders have hit incremental credit growth which has increased by only Rs 80,000 crore during April to December 6, 2019 to Rs 98.1 lakh crore. In contrast, incremental loans had risen to Rs 5.4 lakh crore and Rs 1.7 lakh crore during previous corresponding periods of FY2019 and FY2018 respectively.
Analysts expect bank credit growth to moderate to 6.5-7 per cent during FY2020 from 13.3 per cent in FY2019 following limited incremental credit growth during FY2020 till date.
“Even in a high growth scenario, whereby incremental credit rises to Rs 6.5-7 lakh crore during H2 FY2020 from Rs 5.7 lakh crore during H2 FY2018 and Rs 7.2 lakh crore during H2 FY2019, we projects a 40-45 per cent year on year decline in incremental net bank credit to Rs 6.3-6.8 lakh crore during FY2020 from Rs 11.9 lakh crore during FY2019, while somewhat comparable to Rs 6.5 lakh crore in FY2018. This will translate to a considerable deceleration in year-on-year (yoy) bank credit growth to 6.5-7 per cent during FY2020 from 13.3 per cent during FY2019 and 10.5 per cent during FY2018,” said rating agency Icra Ltd.
A shift of large borrowers such as non-banking financial companies (NBFCs) and housing finance companies (HFCs) to the banking system for their funding requirements, had boosted bank credit growth in FY2019.
However, factors such as muted economic growth, lower working capital requirements, as well as risk aversion among lenders, have compressed the incremental credit growth in FY2020.
The recent data on bank credit released by the Reserve Bank of India (RBI) reveals that the contraction in incremental credit outstanding to the services as well as the industrial segments, offset the entire growth in credit to the retail segment during the seven months of this fiscal. Within services, the credit outstanding to NBFCs has increased. However, the decline in trade credit and other services (which also includes HFCs) has resulted in the overall contraction in credit outstanding to the services segment in the seven months of FY2020. A sizeable portion of growth in retail credit is also driven by the purchase of retail loan portfolios of NBFCs and HFCs by banks.
On the positive side, the incremental deposit accr-etion of the banking system at Rs 5.3 lakh crore remained higher than credit growth till Decem-ber 6, 2019 and similar to Rs 4.6 lakh crore during previous corresponding period of FY2019. The overall deposit base increased to Rs 131.1 lakh crore as on December 6, 2019, a Y-o-Y growth of 10.3 per cent and credit to deposit ratio of 75.8. Apart from the muted increase in currency in circulation, the build-up in the deposit base could be attributed to factors such as lower increase in AUM of debt mutual funds and higher liquidity maintained by companies .