Post DeMo, bank credit grows at over 10% in December

Loans, cash credits, and overdrafts at the end of December 22, 2017, stood at Rs 81,287.32 billion, against Rs 73,340 billion in the year-ago period.

Illustration: Uttam Ghosh/Rediff.com

Bank credit growth has exceeded 10 per cent after more than a year, albeit on a low base.

The latest data of the Reserve Bank of India (RBI) showed growth in loans year-on-year has been 10.83 per cent for the fortnight ended December 22.

Loans, cash credits, and overdrafts at the end of December 22, 2017, stood at Rs 81,287.32 billion, against Rs 73,340 billion in the year-ago period.

The data do not necessarily show a significant pickup in credit growth because the country was going through demonetisation a year ago and banks had largely stopped lending.

Capacity utilisation in industry at an aggregate level stood at 71.2 per cent at the end of the June quarter, according to the RBI's data.

This was a bit lower than the December level. However, it may have improved by now as the index of the eight core industries, which have a weight of more than 40 per cent in the Index of Industrial Production (IIP), rose 6.8 per cent in November.

The steel and cement sectors grew at 16.6 per cent and 17.3 per cent, respectively.

This shows that after months of remaining inactive, banks have started lending.

Much of this could be attributed to the recapitalisation promise of the government, which takes off pressure from banks' capital to meet the provisioning needs for stressed assets.

A significant chunk of demand for loans could be coming from the consumer durable segment, observed ICRA Ratings.

“Disbursements in the consumer durable segment are poised to grow at 21-24 per cent per annum to reach Rs 1.9-2.1 trillion in FY21.

"While shortening replacement cycles in consumer electronics and the large under-penetrated market in the consumer appliances segments augur well from a demand perspective, the proliferation of lender-kiosks at dealer locations, increasing awareness and attractive promotional loan schemes are likely to translate into a higher finance offtake,” said Karthik Srinivasan, group head of financial sector ratings, ICRA.

However, according to Standard Chartered Bank, GDP growth could be slowing.

“First advance estimate of FY18 GDP growth likely to come in at 6.5 per cent, down from an actual 7.1 per cent in FY17,” said the bank in a report.

“The expected growth revival in the H2-FY18 (second half of fiscal 2018) would partly reflect the economy’s ongoing alignment to policy changes.

"However, a favourable base effect will remain a key driver of the recovery. Growth slipped to 6.5 per cent in H2-FY17 in response to demonetisation and ahead of GST implementation,” the bank wrote.