Bank credit grows 14.88% to Rs 91.11 trillion YoY, reveals RBI data

Many have started buying loan portfolios from NBFCs and HFCs to provide liquidity push

Bank credit growth has been healthy despite 11 public sector banks (PSBs) being placed under the Reserve Bank of India’s prompt corrective action (PCA) framework and recent volatility in the debt markets, which affected the non-banking segment. Bank credit has grown 14.88 per cent to Rs 91.11 trillion for the fortnight ended November 9, the Reserve Bank of India (RBI) data reveals. 

Last year, bank credit stood at Rs 79.3 trillion. Deposits with scheduled banks grew by 9.13 per cent to Rs 118.25 trillion for the fortnight ended November 9, while a year ago they stood at Rs 108.35 trillion. 

A senior public sector bank executive told Business Standard: “Retail demand is holding on till now and the working capital demand from corporates is on the rise in busy season. Plus, space will be available in retail as finance and housing finance companies moderate their pace of loan disbursal.”

Loans, cash credits and overdrafts rose to Rs 88.9 trillion as of November 9, as compared to Rs 77.2 trillion last year.

Bank borrowings from the RBI are up to Rs 1.06 trillion as of November 9, while a year ago they were around Rs 247 billion.

According to the RBI data, banks borrowed around Rs 1.33 trillion from the central bank for the fortnight ended October 26.

In the previous fortnight ended October 26, bank credit had grown by 14.57 per cent to Rs 90.37 trillion, whereas deposits rose by 9.01 per cent to Rs 117.71 trillion.

Due to the recent issues in the commercial paper (CP) markets and asset-liability management issues at non-bank financial companies (NBFCs), many banks have started buying loan portfolios from NBFCs and housing finance companies to provide a liquidity push. 

“Effectively in October because of tightness in the money markets, there has been a slowdown in CP assurances and a slowdown in bond issuances by NBFCs, so they have availed of credit lines from the banks, which is being reflected in the RBI’s data,” said Karthik Srinivasan, senior vice president, ICRA. 

“Liquidity for banks is decent as deposit traction has been growing. They are being selective in lending practices. Most of the credit growth over the last few months is going to the retail space while on the corporate side they are largely lending for working capital needs. There have not been any major project announcement in recent times, so it is unlikely that term loans or project finance portfolio picking up,” he said. 

Term loans or project finance are longer-tenure and higher ticket sizes. Had there been a push in such lending overall bank credit growth would be much higher. 

State Bank of India has said it expects its credit growth to rise10 per cent by the end of the current fiscal year. Further, the country’s top lender announced it would buy Rs 450 billion worth of portfolios from NBFCs this year, thereby substituting the funds these firms were raising from the short-term debt markets. 

Further, Srinivasan said, “Many NBFCs have raised funds from banks and have sold portfolios to banks. Therefore, credit growth is up despite the fact that banks’ capitalisation numbers are stretched.” “Incremental credit growth for 2017-18 improved to 10.3 per cent, compared with 8.2 per cent growth in the corresponding period last year...Bank credit growth has improved further in the current fiscal. The growth this year has been fairly broad-based, with services, agriculture and industry seeing higher growth,” said CARE Ratings in a report.