Credit off-take: A silver lining amidst the gloom

The increase in credit growth is also in line with a pick-up in industrial production. In the month of October, the index of industrial production witnessed a jump of 9.8 per cent as the demand rose in the festive month.

A drop in interest rates, following a 125 basis points cut in the repo rate by the RBI in 2015, seems to have had some impact on credit offtake. While it had fallen to a low of 8 per cent in June and 8.1 per cent in October 2015, the credit growth witnessed a smart recovery with the gross bank credit rising by 8.6 per cent in November 2015.

Data released by the Reserve Bank of India (RBI) on Monday shows that there has been a revival in credit growth for the housing loan segment. While it had been slowing down over the last couple of years in line with the falling demand in the real estate sector, in November the credit growth for housing loans from scheduled commercial banks rose by 18.6 per cent over that in the corresponding period last year. November also witnessed the highest credit growth for housing in over two years. The previous high was seen in October 2013 when it stood at 19.3 per cent.

year While there has been a marginal uptick in credit growth in November, experts feel that it will grow faster if the banks decide to pass on the benefits of rate cut to the consumers in a more transparent manner. Though the RBI had cut the repo rate (at which it lends to commercial banks) by 125 basis points in 2015, banks reduced their lending rates between 50 and 70 basis points thereby not passing the full benefit of rate cut to the consumers.

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While industry insiders call for another 100 basis point cut in rates this year, there is a demand for better transmission of rate cuts by banks.

Harshavardhan Neotia, chairman of Ambuja Neotia Group and president, Ficci, called for more rate cuts and said that reduction in interest rates will increase the risk taking ability of the investor. “The rates have not come down for consumers… We feel that at least 1.5-2 per cent moderation is needed from the level it was a year ago … it will increase the risk taking ability of the investors,” he said.

The uptick seen in November has been a result of rise in credit growth across services, industry and personal loan category as all the categories witnessed growth as against those witnessed in the previous months. As against a growth rate of 4.9 per cent and 4.6 per cent seen by the industry in September and October, in November it rose by 5 per cent.

Similarly, for the services sector while the growth has slowed to 5.9 per cent in September, it stood at 6.8 per cent in November.

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Investments by corporates have not picked up over the last couple of years. While the overall credit growth stood at 14 per cent in April 2014, it remained in single digits for the full calendar year 2015. Since the demand has lagged, several industries are facing a situation where their capacity utilisation is still at 60-70 per cent thereby not making a case for them to invest.

The increase in credit growth is also in line with a pick-up in industrial production. In the month of October, the index of industrial production witnessed a jump of 9.8 per cent as the demand rose in the festive month.