Bank credit grows 3.2% in this fiscal so far, deposits rise too

During the initial nine months of the current fiscal year, bank credit in India experienced a growth of 3.2 percent, reaching Rs 107.05 lakh crore. This surpassed the 2.7 percent growth recorded during the corresponding period in 2019-20 when bank advances were Rs 103.72 lakh crore by the fortnight ending March 27, 2020.

As per recent data from the Reserve Bank of India (RBI), bank deposits surged by 8.5 percent, amounting to Rs 147.27 lakh crore between April and December 2020. This marked a notable increase compared to the 5.1 percent growth reported in the same period the previous year. The substantial rise in deposits during this period can be attributed to the perceived safety of banks.

Further analysis from CARE Ratings indicated that the pace of bank credit growth has returned to levels observed in the early months of the pandemic. In March and April 2020, the average bank credit growth was around 6.5 percent. As of the fortnight ending January 1, 2021, the year-on-year growth rate in bank credit was 6.7 percent, and for deposits, it was 11.5 percent.

Despite a slight uptick in bank credit growth in the fortnight ending January 1, 2021, compared to the previous fortnight (December 18, 2020), the growth remains marginally lower than the same period the previous year (7.5 percent as of January 3, 2020). This suggests subdued demand and risk aversion within the banking system.

CARE Ratings highlighted that lenders are exercising caution in their credit portfolios due to concerns about asset quality. The economic impact of the Covid pandemic has led to a multi-speed recovery, and bad loans, or gross non-performing assets (NPAs), in the banking sector are anticipated to rise to 13.5 percent of advances by September 2021, up from 7.5 percent in September 2020, according to the Financial Stability Report (FSR) from the RBI.

The FSR cautioned that if the macroeconomic environment deteriorates into a severe stress scenario, the NPA ratio could escalate to 14.8 percent. Despite positive news on vaccine development, RBI Governor Shaktikanta Das expressed concerns about the uncertainty posed by a potential second wave and new virus mutations, threatening to stall the fragile economic recovery.