Demand for loans shrinks despite liquidity injection
RBI DATA Outstanding non-food credit dipped ₹1.36L-cr from March 27 to May 8
outstanding bank loans shrank during the lockdown despite a massive liquidity injection by the central bank to spur credit growth, indicating demand for loans is ebbing as the pandemic leaves a haze of uncertainty about the future.
Total outstanding non-food credit shrank by ₹1.36 lakh crore, or 1.32%, to ₹101.83 lakh crore on May 8 from March 27, data from the Reserve Bank of India (RBI) showed.
The country has been placed under a stringent lockdown since March 25 to limit the spread of covid-19, bringing economic activity to a standstill. Bankers said wilting credit growth is also a result of the lack of demand for loans and cannot be entirely blamed on banks’ reluctance to lend. A senior banker at a large public sector said last week that customers do not want to borrow now but only keep their credit lines in place.
“They might need money immediately after the lockdown and want to keep the sanctioned limit in place,” he had said.
Finance minister Nirmala
Sitharaman’s office tweeted on May 12 that state-run banks have sanctioned ₹5.95 lakh crore in loans between March 1 and May 8. RBI data on credit flow is available from February 28 to May 8 and shows incremental growth of ₹1.43 lakh crore between these two dates, reflecting a difference of ₹4.5 lakh crore between sanctions and disbursals.
To be sure, RBI data is on outstanding credit (net of repayments), but since most banks have said that around half of their borrowers have opted for the three-month moratorium, repayments are unlikely to have surpassed fresh disbursements.
That apart, while the government data on sanctions is only for state-run banks, the RBI data is for all commercial banks.
Rating agency Icra said on May 5 that the incremental credit flow from banks stood at ₹5.9 lakh crore in FY2020, compared with ₹11.9 lakh crore during the previous fiscal as slowing economic growth curtailed demand for credit and banks became more risk averse. There are expectations of increase in incremental credit flow during FY21, driven by increased credit demand amid weakening cash flows of borrowers, said Karthik Srinivasan, head (financial sector) at Icra.
Meanwhile, the government recently announced measures for small businesses and nonbank financiers, which include ₹3 lakh crore in guaranteed loans.
Experts said that while banks have not been keen to lend to these high-risk sectors, the government guarantee could be a push in the right direction. A note by IFA Global Research Academy pointed out that the measures are intended at getting credit flow to resume in the banking system.
Lenders have so far been stashing significant sums of money with RBI, sometimes even more than ₹8 lakh crore, on a daily basis. Banks would therefore rather earn a paltry interest of 3.75% than lend to businesses and consumers.
The government has distributed 68 million free cooking gas cylinders under Prime Minister Garib Kalyan Yojana (PMGKY) since April 1, the oil ministry said.
Distribution of free cooking gas cylinder is part of the ₹1.7 lakh crore package announced on March 26 to provide immediate relief to the poor from the nationwide lockdown to check the spread of Covid-19. The welfare package also included threemonth ration supply for free and direct cash transfer to underprivileged women, old age persons and disabled people.
Under this scheme, the ministry is providing free of cost liquefied petroleum gas (LPG) cylinders to over 80 million Prime Minister Ujjwala Yojana (PMUY) beneficiaries for three months with effect from April 1, 2020, the ministry said in a statement. PMUY was launched by Prime Minister Narendra Modi on May 1, 2016 in Ballia (Uttar Pradesh) to provide free cooking gas connections to 50 million poor households. Later the target was raised to 80 million, which was achieved in advance on September 7, 2019.