Higher retail loans boost bank credit growth: RBI data

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Mumbai: Bank credit rose by 6.63 per cent to Rs 107.75 lakh crore and deposits grew by 12.06 per cent to Rs 149.34 lakh crore in the fortnight ended February 26, according to RBI data.

In the fortnight ended February 28, 2020, bank credit stood at Rs 101.05 lakh crore and deposits at Rs 133.26 lakh crore, the recent data released by the Reserve Bank of India showed.

Bank credit increased by 6.58 per cent to Rs 107.04 lakh crore and deposits rose by 11.75 per cent to Rs 147.81 lakh crore in the previous fortnight ended February 12, 2021.

Bank credit refers to the amount of credit available to a business or an individual from a banking institution in the form of car loans, personal loans, and mortgages.

Care Ratings in a report said the bank credit growth in the fortnight ended February 26 stood stable compared to the last fortnight and returned to the levels observed in the early months of the pandemic, when the loan growth ranged between 6.5 per cent to 7.2 per cent during April 2020.

According to analysts, the growth in bank credit is driven by an increase in retail loans.

Emkay Global Financial Services in its March 5 report said it expects overall retail credit growth, which is currently at 9 per cent, to accelerate further, led by mortgages (contributing 51 per cent of retail loans) and back-end support by unsecured (cards/ personal loans) and vehicle loans.

“The current market conditions favour banks armed with lower funding rates, strong balance sheet, better asset quality and strong captive customer base,” Anand Dama, an analyst at Emkay Global, had said in the report.   Large private banks such as HDFC Bank (despite suspension in new card acquisition) and ICICI Bank have been at the forefront of retail growth momentum, while Kotak Bank too is finally showing signs of much-needed growth and trying to raise the retail game, the report had said.

Among state-run banks, SBI and Bank of Baroda, which have been the key players in the mortgage market, are changing gears in the auto finance space as well, the research report said.

Care Ratings believe that the increase in the credit outstanding during the next fortnight is anticipated as year-end transactions are expected to push up bank credit as banks undertake the year-end closing activities. This trend can be witnessed for the last three-four years.  In the first nine months of the current fiscal, while the growth in credit was 3.2 per cent, bank deposits saw a rise of 8.5 per cent.

“While bank credit growth had contracted 0.8 per cent in the first half of this fiscal, it recovered sharply in the third quarter by growing around 3 per cent sequentially. In the fourth quarter, too, it should clock near 3 per cent sequential growth,” Crisil Ratings Senior Director Krishnan Sitaraman had said in a report released earlier this month.

The rating agency expects bank credit to rise 4-5 per cent in the current fiscal despite the sharpest contraction the Indian economy has seen since independence.

In the financial year 2021-22, bank credit is seen growing 400-500 basis points (bps) higher at 9-10 per cent, as the country’s economy recovers, supported by budgetary stimulants and measures announced by the Reserve Bank of India (RBI), the Crisil report had said.