Uptick in credit growth; sign of recovery

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Credit disbursals by commercial banks have increased by 6.4% YoY to Rs 110.3 trillion as on October 8, 2021, the Reserve Bank of India (RBI) has said. It is marginally better than at 5.7% in the year-ago period. It is, however, lower than the pre-pandemic level of 8.9%, as reported in October 2019. The month of October traditionally signifies the start of the second half of the financial year, as well as the commencement of a busy season with increased demand for loans from corporate firms, enterprises, and retail segments, the Business Standard has reported.

Credit Limit

The report quoting the CARE Ratings analysis of credit in the second half of the past 10 years said that the Indian economy appears to be in the take-off stage following the second lockdown in April 2021.

The rating agency has predicted increased credit demand and overall growth of 8-10% for the year (FY22).

The growth in the major banking indicators has been inconsistent so far this year. The rate of increase in deposits has slowed.

According to RBI data, deposits increased by 10.16% YoY to Rs 157.55 crore. Deposit growth has slowed from 10.55% a year ago, although it is still higher than 9.8% in October 2019. In September, credit growth had turned positive at 0.1% for the first time in 2021-22.

In FY21, credit growth had plunged to 59-year low. According to reports, one reason for this was higher (AAA & AA+)-rated companies borrowing at cheaper rates from the markets than from banks whose loan pricing has been as high as 46 basis points over the interest rate that corporate bonds commanded.

According to an analysis of the corporate bond yields, bank’s MCLRs and G-Secs between January 2020 and March 2021 by Care Ratings, AAA-rated companies could sell their debt at a cheaper rate than bank loans to the extent of 46 basis points, and AA+ papers by 33 basis points over the MCLR or the Marginal Cost of Fund Lending Rate. When compared to the G-secs,  AAA and AA+ papers could command only 100 basis points over the benchmark gilts.