India -Credit growth shrinks 3.16% to 20-year low

Non-food credit growth of banks shrank 3.16% or R2.13 lakh crore between April 3 and June 26, data from the Reserve Bank of India showed.

Outstanding non-food credit stood at R65.47 lakh crore as of June 12, an over-20-year-low growth of 9.48% from a year ago and sharply down from R67.62 lakh crore as of April 3.

In the fortnight ended April 3, banks disbursed R2.66 lakh crore worth of loans, the highest fortnightly disbursal on record. Most of such loans were short-term working capital, which are typically repaid within three months.

Deposits fared better with a growth of 11.38% y-o-y to an outstanding of R87.98 lakh crore as of June 26. However, between April 3 and June 26, deposits fell 1.26% or R1.12 lakh crore, data shows.

While calculating the credit and deposit growth during a financial year, the RBI considers the loan book as of the last Friday of the year (March 20 in the case of 2014-15), which, in most cases, tends to avoid the last-minute massive additions by banks to bolster their loan book. If one considers this method, non-food credit offtake has grown by a measly 1% until June 12.

However, this has not stopped funding access to corporates and many companies are borrowing through commercial papers and corporate bonds given the sharp fall in yields here.

A AAA-rated public sector company could borrow at 8.3-8.4% from the bond market for the long term. For the same company, the borrowing rate from banks would be at least 9.7% which is the lowest base rate at present. Meanwhile, companies mopped up R1.41 lakh crore through the corporate bond market in the first three months of FY16.