Bank credit has seen an uptick in recent months indicating a recovery in economic activities but the resurgence of Covid-19 cases and limited lockdowns are raising fresh concerns.
Reserve Bank of India data reveal that year-on-year growth in non-food bank credit was 6.5 per cent in February. This is not bad when compared to a growth of 7.3 per cent in February 2020.
But the ongoing lockdowns are set to impact credit growth. CARE Ratings has pegged the potential loss of GVA to the country from the lockdown in Maharashtra for a month at about ₹40,000 crore in real terms.
Amongst sectors, credit growth to agriculture and allied activities, service and personal loans recorded robust expansion. However, credit to industry contracted marginally by 0.2 per cent in February compared to 0.7 per cent growth in February 2020 “mainly due to contraction in credit to large industries by 1.5 per cent”, RBI data showed.
Bankers expect a revival in credit demand to large industries in the second half of the fiscal with the capex push from the Union Budget.
Between end of March 2020 and February 2021, gross bank credit grew 3.3 per cent against 3.5 per cent last year, which analysts say is quite robust given the lockdown in the first quarter of 2020-21.
Provisional data by banks for the fourth quarter on loans and advances has shown an improvement compared to earlier quarters since the pandemic.
HDFC Bank reported a 13.9 per cent growth in advances as on March 31, compared to a year ago while Federal Bank’s gross advances increased by nine per cent in the same period. Advances growth for IndusInd Bank and YES Bank was more modest.
RBI policy
With the Monetary Policy Committee of the Reserve Bank of India expected to continue with its accommodative stance and maintain status quo on rates, there could possibly be continued demand for credit.
More clarity on economic prospects will be available on April 7 when the RBI comes out with the Monetary Policy statement.
According to rating agency Crisil, bank credit growth is set to speed up to 9-10 per cent in the new fiscal after mid-single digit growth in fiscal 2021 but it has cautioned that the sharp rise in Covid-19 cases since mid-February and the impact of any stringent containment measures on businesses are the key threats to the nascent demand recovery and could impact the credit quality outlook adversely.