After hitting a 3-year low of 5.1% in the initial half of FY21, the credit development gained pace from November 2020 as the economy began opening up following pandemic-triggered lockdowns. In its annual report for the nine-months ended March 2021, the Reserve Bank of India (RBI) stated the worst was more than for the credit development.
The positive momentum in credit offtake considering the fact that November 2020 reflected recovery in financial activity, which was additional supported by the cumulative reduction in the policy repo price. Loan development of banks was impacted in the course of the initial half of the fiscal 2021 (H1FY21) and remained at 3-year low of 5.1% till October, 2020, but it enhanced to 5.6% on a year-on-year (y-o-y) basis till March 2021.
“A gradual pick-up in the economic activity during the second half of 2020-21 pulled up credit growth,” the RBI stated on Thursday. Going forward, accommodative liquidity circumstances and interest prices, various development enhancing measures announced by the government and commencement of the mass vaccination drive are probably to nurture the recovery, which, in turn, is anticipated to have a favourable bearing on credit demand and provide, the report stated.
Among bank groups, public sector banks registered a non-meals credit development of 3.1% in March 2021, compared to 3.4% a year ago. However, the credit extended by private sector banks grew by 9.6%, compared to 13.9% a year ago.
In line with RBI’s view, several lenders are expecting much better credit development in the present economic year (FY22) on the back of financial recovery forecasts. For instance, State Bank of India (SBI) hopes to develop its loan book by 10% in FY22, regardless of much less than 5% credit development in FY21. After declaring March quarter earnings, chairman Dinesh Kumar Khara stated, “The bank may register a credit growth of around 10% in FY22 as the bank’s credit growth is normally 1% above India’s GDP.”
As per RBI’s annual report, banks’ credit-deposit ratio moderated to 72.4% in 2020-21 from 76.4% a year ago, largely reflecting the subdued credit demand circumstances in the economy.
During FY21, the slowdown in banks’ credit development was broad-based across all significant sectors, except agriculture. According to information on the sectoral deployment of bank credit, the loan development to agriculture and allied activities accelerated to 12.3% in March 2021, compared to 4.2% a year ago. Credit to market decelerated marginally to .4%,compared to .7% a year ago.