With demand for loans not showing any signs of pick-up, the growth in non-food bank credit off take has fallen further to 8.4 per cent in June 2015 as compared with the increase of 13.0 per cent in June 2014. While this is the worst growth in loan demand in the last two decades, the Reserve Bank of India and rating agencies like Crisil say loan off take will increase by the third quarter of the fiscal 2015-16.
According to the Reserve Bank of India, the slow growth in credit offtake has been contributed by industry, agriculture and the services sector. Total outstanding loans were at Rs 60,71,400 crore in June 2015 as compared to Rs 56,01,200 crore in the same period of last year. Credit to agriculture and allied activities increased by 11.1 per cent in June 2015 as compared with the increase of 18.8 per cent in June 2014, the RBI said.
Why was the credit offtake growth declining? “Muted investments, rising risk aversion owing to deteriorating asset quality of public-sector banks (PSBs), and an increase in cheaper funds raised via commercial paper (such issuances rose by 57 per cent year-on-year as on July 15, 2015) slowed credit offtake,” says a Crisil official.
Even as non-performing assets of the banking sector soared, credit to industry increased by 4.8 per cent in June 2015 as compared with the increase of 10.2 per cent in June 2014.
Deceleration in credit growth to industry was observed in all major sub-sectors barring gems and jewellery. Credit to the services sector increased by 6.9 per cent in June 2015 as compared with the increase of 13.5 per cent a year ago. The RBI says a big fall in credit growth was reported in the NBFC segment with credit offtake rising just 2.0 per cent in June 2015 as compared with the increase of 16.8 per cent in June 2014. However, personal loans, including auto, home and credit cards increased by 17.1 per cent in June 2015 as compared with the increase of 15.3 per cent in June 2014.
The RBI had last week revealed that in the April-June quarter, credit in the banking system declined by 2.5 per cent whereas deposits declined by 1.26 per cent. In FY15, credit to the industry grew at the slowest pace in the last 17 years at only 9.52 per cent. Since the first rate cut in January, the median base lending rates of banks has fallen by around 30 basis points, a fraction of the 75 basis points in rate cut so far.
However, RBI Governor Raghuram Rajan expects a pick-up in credit off take in the third quarter — October-December period. As loan demand picks up in Q3 of 2015-16, banks will see more gains from cutting rates to secure new lending, and more transmission will take place. The welcome announcement by government of infusion of bank capital into public sector banks will help loan growth and hence transmission, as will currently easy liquidity conditions, he had said.
Agreeing to this, Crisil said, “we expect a gradual pick-up in the latter half of 2015-16, driven by a rise in retail loan (automobile and home loans), public sector investments (which will, in turn, drive up working capital demand across allied sectors) and small-scale enterprises.”
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