Non-food credit growth slips below 6%

The fall in corporate borrowing has also been weighing on loan growth.

The rate of growth in non-food credit continued to shrink in March, falling to 5.54% year-on-year (y-o-y) for the fortnight ended March 29 from 6.44% in the previous fortnight. The slower growth in credit coincides with a fresh surge in coronavirus infections across India and associated restrictions by state governments. Deposits crossed the Rs 150-lakh-crore mark during the fortnight under review.

As on March 29, outstanding non-food credit stood at Rs 108.9 lakh crore, showed data released by the Reserve Bank of India (RBI). Commercial paper (CP) issuances in March 2021 were Rs 2.23 lakh crore, 5.7% higher than the corresponding month last year and 41.7% higher sequentially, according to CARE Ratings. Total CP issuances during the fiscal stood at Rs 17.4 lakh crore, almost 21% lower than the previous year. “The decline so far this year can be attributed to the pandemic led lockdown and the consequent lower requirement of short-term funds by corporates,” analysts at CARE said in a recent note.

The fall in corporate borrowing has also been weighing on loan growth. In a report earlier this month, analysts at Kotak Institutional Equities (KIE) pointed out that corporate loan growth has been in negative territory since September 2020. Most sectors are witnessing muted loan growth with a few exceptions, such as telecom. Most banks are focused on lending to better-rated companies.

“While credit demand is recovering from post-lockdown lows along with approval rates and share of NTC (new-to-credit) originations, we expect loan growth recovery to be slower than expectations of market participants,” KIE said. The brokerage expects retail credit to continue to dominate loan growth after a brief interruption due to Covid. Mortgages are likely to have a meaningful share of incremental retail credit, while consumption-linked credit is likely to grow faster.

In the meantime, deposits with banks continued to grow in double digits and stood at Rs 151.13 lakh crore, up 11.4% y-o-y. The credit-deposit ratio improved to 72% from 71.74% as on March 12.

Deposits have been growing through a cycle of rate reductions amid uncertainty around the economic environment. Some analysts have pointed out that the increase in deposit growth during recent months may have found support in outflows from equity mutual funds. Others attribute the stickiness of deposits to lower consumption.