Bank credit growth halves to 6.5% in fortnight to May 22
Banks had surplus liquidity of ~4.5 trn in the period
Banking system credit growth halved to 6.5 per cent in the fortnight ended May 22, reflecting the impact of a nationwide lockdown imposed at the end of March. The drop was year-on-year.
The banking system had an outstanding credit of ~102.2 trillion as of May 22, according to the Reserve Bank of India data.
Credit grew at a similar pace — 6.5 per cent — in the previous fortnight, while it had expanded 12.7 per cent a year ago (as of May 24, 2019), according to rating agency CARE Ratings.
Senior bankers said severe demand destruction during the lockdown was one of the reasons behind the fall in credit growth. The use of sanctioned credit would see a gradual rise as businesses begin activities during the
unlocking phase, they said.
Also, the first quarter of the financial year is usually lean as units and service sector enterprises finalise accounts for the year gone by.
The deposit accretion activity has remained steady in the current financial year compared to the same period last year. Deposits grew 10.6 per cent (as of May 22, 2020) over the previous fortnight, and improved marginally on a YOY basis (10.1 per cent as of May 24, 2020).
The coronavirus-induced lockdown has destroyed the demand for money, leading to banks sitting on surplus liquidity, said a public sector banker. The customers, too, have enough cash in their accounts as there’s no spending.
During the week ended May 22, the banking system had surplus liquidity of over ~4.5 trillion, said CARE Ratings, leading to banks slashing interest rate
on deposits.
State Bank of India (SBI) reduced the fixed deposit (FD) rates to 4.4 per cent from 4.8 per cent earlier on deposits with tenures between 180 days and 210 days. The rate for FDS maturing between five years and 10 years was cut to 5.4 per cent from 5.7 per cent.
Liquidity in the banking system is expected to remain surplus, with the growth in bank deposits expected to be higher than the growth in the bank credit offtake. In the previous financial year, the pace of bank credit growth had fallen sharply to 6.1 per cent, from 13.3 per cent in FY19.
Deposit accretion activity had moderated in FY20 to 7.9 per cent, from 10 per cent in FY19, according to the RBI data. While banks faced the slowdown impact throughout the year, the Covid-19 blow came in the final month of the financial year.