The counters in the banking hall of a state-owned bank in India. (Photographer: Sondeep Shankar/Bloomberg News.)

Bank Credit Growth At Its Highest Since July 2014

Bank credit grew at its fastest pace in almost four years, show data released by the Reserve Bank of India on Thursday.

Bank credit from scheduled commercial banks rose by 12.6 percent during the fortnight ended April 27, 2018. This is highest growth in bank credit seen since July 2014, show data available from Bloomberg. Credit growth stood at 11.15 percent in the previous fortnight ended April 13, 2018. In the year-ago fortnight, bank credit grew at just over 4 percent, suggesting some base effect in the growth shown in the latest reporting fortnight.

Outstanding credit by scheduled commercial banks stood at Rs 83.25 lakh crore as of April 27, shows the RBI data.

Demand for bank credit has been picking up slowly after remaining depressed for some time now. A slowdown in corporate credit demand due to over leveraged balancesheets and one-off factors like demonetisation had muted demand for bank credit. Also, until last year, rates were more favorable in the bond markets which led to a shift in short term corporate borrowings away from banks.

Some of these factors have now turned. For one, yields in the bond markets have risen sharply, making bank credit more appealing. Following volatility in bond yields, some credit demand may have shifted from bond markets to banks, Aditi Nayar, principal economist at ICRA told BloombergQuint.

In addition, demand for certain kinds of credit, like personal loans and vehicle loans, has remained strong. This has reflected in the fourth earnings of private lenders. HDFC Bank, India’s largest private bank by assets, reported loan growth of 18.7 percent in the January-March quarter. ICICI Bank reported 15 percent growth in domestic loans, while Axis Bank reported growth of 18 percent in loan disbursals during the quarter.

Some demand may have also moved to banks after the Reserve Bank of India clamped down on the practice of banks issuing Letters of Undertaking (LoUs) for overseas shipments.

While credit growth could be high due to base effects, the quantum of credit off-take in April has also been high, said Saugata Bhattacharya, chief economist at Axis Bank.

While it is difficult to ascribe the reasons, trends in sector specific off-take available for March suggest a combination of factors. One, of course, is a sign of rising demand for credit with the gradual economic recovery. Unusually tight liquidity in April and consequent rising market borrowing costs could moreover have diverted credit demand to banks, particularly from NBFCs. Some residual effects of discontinuance of LOUs issued by banks leading to a move to onshore bank credit might also have added to demand.
Saugata Bhattacharya, Chief Economist, Axis Bank.
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