Bank credit growth hits three-year high of 13.1%, shows RBI data

Bank credit grew 13.1 per cent year-on-year (YoY) in the fortnight ended June 3, the highest in the past three years, the latest data released by the Reserve Bank of India (RBI) shows. Growth in bank credit in the previous year was 5.7 per cent.

At an event on Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das said: “We are seeing reasonably satisfactory credit offtake happening. It is about 12 per cent YoY, according to the latest data. Last year, around this time, credit growth was 5-6 per cent.”

In the fortnight concerned, banks extended incremental credit of Rs 1.02 trillion, taking the outstanding loans to Rs 121.40 trillion. Credit growth was even higher in April 2019, when it grew 14.19 per cent. The uptick comes amid a rise in lending rates.

“There are multiple factors in this. For companies, working capital requirements, which had fallen during the pandemic, are normalising and to that extent working capital utilisation is improving,” said Prakash Agarwal, director and head, (financial institutions), India Ratings.

“Simultaneously, credit from the non-banking sector, which had been muted last year, has picked up considerably. In retail, credit growth has been strongly supported by robust housing loan growth and consumption loans as banks became more proactive in this segment after Covid came. We expect part of the foreign borrowing maturing in the current year will be refinanced from domestic sources, primarily banks, as refinancing conditions tighten overseas. These factors should hold up credit demand in the near term,” Agarwal said.

Prashant Kumar, managing director and chief executive officer, YES Bank, said borrowers, especially companies, were able to borrow from the markets and overseas but now fund-raising from the markets had become costlier than bank borrowing. Hence, companies have shifted to banks. Plus, very little money is coming from overseas. As for credit offtake staying the pace, he said this would depend on how inflation affected demand in the economy.

In the same period, bank deposits grew Rs 1.59 trillion, taking the total to Rs 167.33 trillion. On a YoY basis, deposit growth in the banking system is 9.3 per cent.

As of May 20, credit growth was 12.1 per cent YoY, which was more than double the 6 per cent recorded a year ago.

Bank credit in the system is expanding in double digits amid interest rates going up as the RBI has hiked the policy repo rate by 90 bps in about a month to tackle inflation.

After the rate hikes, lenders have passed on the increases to borrowers linked to external benchmarks. And, even loans linked to the marginal cost of funds-based lending rate (MCLR) have seen an increase.

A hike in retail fixed-deposit rates has been much smaller than the lending rate hike. Bulk deposit rates have, however, spiked.

“Retail term deposit rates have risen across the board but not commensurate with repo hike,” ICICI Securities said in a note.

“Bulk deposit rates have witnessed the sharpest spike of 100-170 bps in a one-year bucket. In less than a year bucket, the differential between retail and bulk deposit rates is entirely bridged compared to over 100 bps variance earlier,” the note said.

While credit growth looks encouraging, experts have pointed out with the benchmark policy rate expected to go up further because of high inflation, it may hurt demand and credit offtake in the system.

“…the lagged impact of monetary policy tightening and elevated inflation could start reflecting towards the later part of this financial year and next financial year on credit growth,” Agarwal said.