ABHIJIT LELE Banking credit contracts ~54,000 crore in August

Bank credit in India shrunk 0.5 per cent, or ~54,000 crore, in August to ~102.11 trillion (as of August 28, 2020), as the Covid19 pandemic continues to hit demand for loans. The outstanding credit in the banking system was ~102.65 trillion as of July 31, 2020.

According to the Reserve Bank of India (RBI) data, the year-on-year (YOY) growth in credit was 5.5 per cent for the fortnight ended August 28, 2020, maintaining the pace seen in the previous fortnight. Credit growth was in double digits (10.2 per cent) in the corresponding period last year.

CARE Rating said this reflects weak demand and risk aversion in the banking system. August saw further easing of restrictions imposed to contain the Covid-19 pandemic and banks stepped up credit disbursements to micro, small and medium enterprises under the government-guaranteed credit scheme. Yet, the incremental credit growth is weak, bankers said.

CARE said scheduled commercial banks are also cherrypicking their credit portfolios with caution due to asset quality concerns. With economic activities remaining subdued, the overall bank credit is expected to remain slower in the near term, it said. India’s economic growth took a severe knock in the first quarter of the current financial year (Q1FY21) with gross domestic product shrinking 23.9 per cent.

Banks garnered a little over ~15,000 crore in deposits in August. The banking system had outstanding deposits of ~141.76 trillion (August 28), against ~141.61 trillion (July 31).