Rs 1 lakh crore: Fall in bank credit growth in fortnight after Nov 8

Banks are now caught in a dilemma even as they stare at a decline in loan growth — considering the surge in deposits since November 9.

Written by George Mathew | Mumbai | Updated: December 14, 2016 12:07 pm
demonetisation, demonetisation effects, bad loans, Indian banks lending-demonetisation, RBI-demonetisation, India news, India econony-demonetisation, India news, Indian Express A large queue of people wait outside a bank to exchange Indian currency in the denominations of 1000 and 500 that have been declared to be of no value. (AP Photo)

Struggling to cope with bad loans and the aftermath of the demonetisation decision, Indian banks have taken a hit on lending. Loan growth plunged by Rs 1 lakh crore in the fortnight that ended November 25, according to estimates. According to RBI data, credit or loan growth for the fortnight that ended November 25 declined to 6.6 per cent from 7.9 per on a year-on-year basis in the previous fortnight.

“Credit growth fell by around Rs 65,000 crore from November 11 to November 25. At the same time last year, credit growth rose by Rs 38,000 crore and the year before last, the growth was around Rs 30,000 crore during the same fortnight. The average credit growth in a fortnight is around Rs 30,000-35,000 crore. Compared to the previous years, this means overall credit growth has declined by Rs 100,000 crore during the first fortnight after the withdrawal of notes,” Udit Kariwala, Analyst, Financial Institutions, India Ratings & Research, said.

During the fortnight that ended September 5, 2014, credit growth in the banking system fell to 9.68 per cent — the first time since October 2009 (9.01 per cent) that growth in bank credit fell below 10 per cent.

Bankers said the note withdrawal exercise may turn out to be a drag on the banking sector’s profits with retail fee income falling and operating costs rising sharply.

“Attention was diverted from normal business as banks were directing all their resources for collecting deposits after demonetisation. We were forced to deploy most of the staff for cash management — collecting deposits as well as handling withdrawals and note supplies. We asked staff who were on leave to join back. On many days, our staffers were leaving branches well past midnight,” a senior official of a leading nationalised bank said.

“It’s very difficult to quantify the impact of cash management on the working of banks. Operating costs of banks have gone up after the announcement. There could be some impact on the banks’ financials in the third quarter,” Kariwala said.

The loan offtake has fallen as bank manpower was concentrating fully on the demonetisation issues. This trend is likely to continue for the next few fortnights since the currency issue is yet to be sorted and shortage is likely to continue even after the December 30 deadline, a banking source said.

Bankers said waivers and reduction in charges and fee on debit and credit cards and ATM use are likely to bring down the retail fee income of banks. Banks have decided to waive transaction charges on debit card payments to ease the cash crunch. Banks that issue point-of-sale charge merchants a merchant discount rate (MDR).

The waiver will be in place until December 30. National Payments Corporation of India has waived the fee for switching services until December 31. Visa and Mastercard have also agreed to cut the surcharge on debit card purchases till then.

Banks are now caught in a dilemma even as they stare at a decline in loan growth — considering the surge in deposits since November 9. As much as Rs 12.44 lakh crore was deposited by customers in Rs 500 and Rs 1,000 notes up to December 10. While this has not led to a decline in lending rate, banks have been slashing deposit rates across the board.

“Since the banknote ban, falling bond yields and ample liquidity saw banks swiftly trim deposit rates but are yet to meaningfully lower borrowing rates. The next round of MCLR (marginal cost of funds lending rate) review, probably in early 2017, might see banks lower these rates,” Radhika Rao, Economist, DBS Bank, said.

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  1. K
    Kalidas
    Dec 14, 2016 at 2:17 am
    Often we accept opinions and factual misrepresentation of Economists, Statisticians and Rating agencies on face value. lt;br/gt;lt;br/gt;They hide real facts. Yet they do influence the policy makers to take wrong decisions. lt;br/gt;lt;br/gt;The real credit growth is arrived at by using "credit numbers for a period LESS credit repaid" This will give the real new credit numbers for two comparable periods whether they rose or fell..."lt;br/gt;lt;br/gt;It also reports that deposits have risen by ₹12.44 lakh crores, necessitating lower deposit and lending rates. The ground realities are different.lt;br/gt;lt;br/gt;The rise in deposit was forcibly created by ₹500 / ₹1000 notes invalidation. The people are forced to return these notes before 31/12. At same time, the people are not allowed to withdraw freely. More deposits minus limited withdrawals show up in more deposits accruals in temporary CASA accounts (Current and Savings Deposits). The numbers for term/fixed deposits are not revealed.lt;br/gt;lt;br/gt;Inflation numbers are also deflated abnormally. People do not have money in small notes needed to buy vegetables. The vendors sold these perishables at distress prices.lt;br/gt;lt;br/gt;Once the system is replenished with enough currencies in small notes with unlimited withdrawals, the price will rise strongly due to limited supply of vegetables. Old inventories are destro. Build up of new inventories will take minimum 2 months of vegetable growth cycle. lt;br/gt;lt;br/gt;Inflation will be very high, almost double, when normalcy returns. It will be abnormal, remaining high for short time.
    Reply
    1. K
      Kalidas
      Dec 14, 2016 at 1:10 am
      Read this together. The IE days in the above news report that.."Credit growth fell by around Rs 65,000 crore from November 11 to November 25.." There are also news report that "many borrowers have paid off loans of about ₹65,000 stores with old ₹500/₹1000 notes..." lt;br/gt;lt;br/gt;It means that bank credit has fallen mainly due to loan/ credit repayments due to Demonetization" No more comments necessary.
      Reply
      1. K
        Kalidas
        Dec 14, 2016 at 1:18 am
        Read this together. The IE says in the above news report that.."Credit growth fell by around Rs 65,000 crores from November 11 to November 25.." lt;br/gt;lt;br/gt;There are also news report that "many borrowers have paid off loans of about ₹65,000 crores with old ₹500/₹1000 notes..." lt;br/gt;lt;br/gt;It means that fall in bank credit was mainly caused by loan/ credit repayments due to Demonetization" lt;br/gt;lt;br/gt;No more comments necessary., Please ignore previous post due to spell errors.
        Reply
        1. K
          Kalidas
          Dec 14, 2016 at 4:58 am
          You have given me right point by mentioning that you now hold two months cash to avoid standing in line again.lt;br/gt;lt;br/gt;Like you other people also believe so. So this time around people will hold more cash than before, draining the banks of extra liquidity they were used to before. lt;br/gt;lt;br/gt;The rumours started by RSS affiliate economist Mr. Gurumurthi that even ₹2000 notes may be withdrawan in five years, giving rise to fear that like Earthquakes, some after shocks may be coming on currency front.lt;br/gt;lt;br/gt;In near future, the banks will be losing more money than coming back, thus forcing interest rates to go higher, not lower. lt;br/gt;lt;br/gt;Your question when and how soon the system will be replenished, I point out that Government is trying to import 20,000 tons of currency paper from 9 shortlisted suppliers in Europe and Switzerland. These are recent published reports.lt;br/gt;lt;br/gt;It means that current short supply in currency is due to "No Paper" and this why they display on ATM machine "No Notes" available. .
          Reply
          1. A
            Atif Mallo
            Dec 16, 2016 at 12:47 am
            The Regions has recently started a new and simple banking service for you which is known as Regions online banking service. lt;br/gt;
            Reply
            1. B
              Binay
              Dec 14, 2016 at 7:59 am
              Less credit growth doesn't mean economy will go down. Banks already lots of NPAs because of mindless credit advances. Who's going to pay for that? Can the government help banks to disclose the list of defaulters and force them to pay back?
              Reply
              1. R
                Rajiv Dua
                Dec 14, 2016 at 2:59 am
                We are in for very bad times. Modi will try extremely populist measure or even war to win back pority. India is in shambles for some time to come.
                Reply
                1. M
                  M MD
                  Dec 14, 2016 at 5:27 am
                  MAJOR CONTRIBUTION OF THS IC DESPOTIC ORDER IS LOSS OF FAITH IN BANKS. NO LONGER THE MONEY BELONGS TO DEPOSITORS. ENTIRE MONEY LIKLEY TO BE WITHDRAWN AT AN EARLIEST POSSIBLE TIME. BANKS SHALL BE LEFT ONLY WITH ADVANCES
                  Reply
                  1. K
                    kb
                    Dec 15, 2016 at 12:19 am
                    It’s definitely going to further erode banks’ income. Most of the state-run banks have been running on loss for years with mounting NPAs. The Government will not make any surgical strike against NPAs of banks for obvious reasons. The scenario looks grim indeed, and GDP forecasts will be further lowered now.
                    Reply
                    1. M
                      Manzoor
                      Dec 14, 2016 at 7:50 am
                      We are living in a fool's paradise.
                      Reply
                      1. M
                        Manzoor
                        Dec 14, 2016 at 7:42 am
                        ईब्तादाए ईश्क है रोता है क्या,lt;br/gt;आगे आगे देखिए होता है क्याlt;br/gt;😢😢😢
                        Reply
                        1. M
                          Mahender Goriganti
                          Dec 14, 2016 at 12:42 am
                          We all know the know the hidden agenda behind this article
                          Reply
                          1. M
                            Mohan
                            Dec 14, 2016 at 4:52 am
                            ic article just reflects the mindless tabloid sensationalism of IE. Since the banks NPAs are running in double digit, it is good that the credit off take slows down and banks exercise caution. Thnx to UPA, earlier it was a free for all. Anyone can do anything and get away without a scratch so long as he shares his loot with the party.
                            Reply
                            1. A
                              Avinash
                              Dec 14, 2016 at 3:21 am
                              Very immature, thoughtless dry humor
                              Reply
                              1. S
                                sacchadesi
                                Dec 14, 2016 at 4:52 am
                                Money deposited is not FD. It's just a deposit that bank cannot allocate for other things as it can be taken out by ac holder anytime.lt;br/gt;lt;br/gt;People talking about Banks benefiting from all this money are either fooling themselves or fooling others. Only Bhakts can do both so watch out for that too.
                                Reply
                                1. S
                                  Sanjay Bhattacharya
                                  Dec 14, 2016 at 7:26 am
                                  Don't why a man like Rahul is given importance. his intelligence level is very low but his crooked mind is sharper than his mother.
                                  Reply
                                  1. X
                                    xyz
                                    Dec 14, 2016 at 1:50 am
                                    I will put in the comments. Many borrowers have paid off loans of about 65,000 cr. That means Banks will not earn any interest on these 65,000 cr. This is a loss in earning for the bank.lt;br/gt;lt;br/gt;Second Credit growth has fallen by 65,000 cr. Emphasis is growth has fallen. This means banks will earn no interest payments on this 65,000 cr.lt;br/gt;lt;br/gt;Therefore banks are at a double loss: No interest earning from past loans because they are paid. And no interest earning in future because no loans are taken.
                                    Reply
                                    1. X
                                      xyz
                                      Dec 14, 2016 at 2:55 am
                                      What you say is true. I am getting vegetables like tomatoes, potatoes, onions, etc at near throwaway prices. Fruits are also at very less prices. Kirana items too are being sold at less prices. Or at least there is less haggling. The shopkeeper wants to just just get rid of the item. lt;br/gt;lt;br/gt;You say Once system is replenished. We do not know how long it will take. To that add two more months because people like me will keep two months cash requirement at home just to avoid standing in the queue. lt;br/gt;True Old Inventories are destro. But even if money circulation will be back the credit cycle will be broken and where will the farmer get money for new inventory? And at what cost.
                                      Reply
                                      1. S
                                        sochee
                                        Dec 14, 2016 at 3:34 am
                                        Really one does not know the purpose for which this article has been written. Post demonetisation everyone knows that economy is in turmoil and there are bound to be certain imponderables. Whenever one indulges in comparison he should compare apples to apples not apples with dates. What happened during the relevant period in 2014 is not comparable with the situation in November 2016 when not only banks but every component of our economy is in a state of flux. There is an intellectual dishonesty behind this write up.
                                        Reply
                                        1. S
                                          Sagar Patil
                                          Dec 14, 2016 at 7:00 am
                                          As your point, Politicians are still illiterate fools..... They dont have enough knowledge about economy. lt;br/gt;If AGREE then We are fools and illiterates where we elect to them to rule on us.
                                          Reply
                                          1. P
                                            P Eng Suraj Singh
                                            Dec 14, 2016 at 12:59 am
                                            Please explain your intention about agenda that you are referring to.
                                            Reply
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