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Bank credit growth hits 2-year low on weak demand in key sectors

Data shows that the bank credit outstanding for the eight months of FY20 expanded by just 1 per cent.

Written by Sandeep Singh | New Delhi | Published: January 13, 2020 3:12:59 am
Data released by the Reserve Bank of India shows that both these sectors have not witnessed any credit expansion in the last eight months.

Festive season and the announcement on cut in corporate tax rates notwithstanding, the gross bank credit growth declined to a two-year low of 7.3 per cent in November 2019, driven by weak credit demand by the industrial and services sector. The weakness in economic activity this fiscal has, in fact, resulted in a contraction in credit outstanding for the industrial and services sector for the period between April and November 2019.

Data released by the Reserve Bank of India shows that both these sectors have not witnessed any credit expansion in the last eight months. While the credit outstanding for the industry contracted 3.9 per cent from Rs 28.85 lakh crore in March 2019 to 27.72 lakh crore in November 2019, that for the services sector contracted by 2.2 per cent from Rs 24.15 lakh crore to Rs 23.62 lakh crore in the same period.

Data shows that the bank credit outstanding for the eight months of FY20 expanded by just 1 per cent. Credit outstanding for the non-food sector too expanded by a meagre 0.5 per cent during the eight month period from Rs 86.33 lakh crore at the end of March 2019 to Rs 86.73 lakh crore in November 2019, primarily on account of weak industrial and services sector demand.

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While the year-on-year (y-o-y) credit growth for the non-food sector expanded by 7.2 per cent in November 2019, the two key sectors — industry and services— that account for nearly 60 per cent of the credit outstanding by banks saw their credit expand by 2.4 per cent (lowest in 14 months) and 4.8 per cent (28-month low), respectively. The personal loan segment, however, witnessed credit outstanding grow by 16.4 per cent y-o-y in November, and for the eight month period it expanded by 8.3 per cent from Rs 22.2 lakh crore in March 2019 to Rs 24.04 lakh crore in November 2019.

Within the personal loan segment, the consumer durable segment witnessed a y-o-y expansion of 68 per cent from Rs 3,274 crore in November 2018 to Rs 5,499 crore in November 2019. However, for the eight month period between April and November, this segment saw a contraction in credit outstanding by 12.7 per cent.

The credit demand from the housing segment expanded 18.3 per cent y-o-y in November and for the eight month period, it expanded by 9.9 per cent.

The recent decline in credit growth follows a sharp revival in credit seen in each of the months between April 2018 and July 2019 when it expanded in double digits. The services sector, which led the revival in credit growth and was witnessing the highest economic activity, has seen its credit growth come under 5 per cent for the first time in 28-months.

The Reserve Bank data is in line with the slowdown seen in factory output over the last three months. While gross bank credit growth had hit a low of 3 per cent in February 2017, following demonetisation in November 2016, it witnessed a slow but steady revival over the next two years to hit a 55-month high of 13.6 per cent in November 2018 (the highest since the Narendra Modi-led NDA came to power in May 2014). In November 2019, it came down to 7.3 per cent.

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