Missing Credit

Bank credit growth shows signs of uptick, backed by retail and agri loans, but is expected to remain muted in FY21 due to asset quality pressures

- NITI KIRAN

After being on a downward trajectory since March 2020, bank credit growth is showing signs of uptick — it grew 3.2 per cent during April-December FY21, against 2.7 per cent in FY20 — primarily due to strong festive demand. Incremental disbursements (over March) were visible for the first time in November, driven by retail and agriculture credit growth. Going ahead, personal loan segment is likely to be the silver lining, though a lot hinges on overall economic revival as well.

Taking Stock

Non-food credit, which accounts for 99.3 per cent of outstanding bank loans, has been weak due to slowing consumption, hit further by a nationwide lockdown. Over the past two years, loan growth almost halved from 12.3 per cent in FY19 to 6.7 per cent in FY20. Since then, credit growth has remained range-bound, 6-7 per cent, year-on-year (y-o-y) till August, but slowed down marginally in the following two months; it surged over 45 basis points in November to 6 per cent from a 5.6 per cent growth in October. “Nonfood credit was steady at 6 per cent, y-o-y, in a similar range of 6-7 per cent from March ‘20 onwards. Absolute credit intensity is not high and has been managed by few segments and sectors, while base effect is slightly aiding and should continue ahead,” according to a Prabhudas Lilladher report.

Primary Drivers