Credit growth inches up to 5.66% in October amid increased activity: RBI

With the unlocking process on course, festival season is expected to lead to further rise in demand for credit

The bank credit growth on a year-on-year basis inched up to 5.66 per cent in the fortnight ended October 9 from 5.14 per cent in the previous fortnight. The rise in commercial banks' credit growth is in sync with the elevated business activity at the end of the second quarter. Sequentially, credit showed some signs of a pick-up, according to the Reserve Bank of India (RBI). 

RBI data showed that bank credit rose by Rs 72,357 crore to Rs 103.43 trillion in the October 9 fortnight after expanding by Rs 44,210 crore in the previous fortnight. The credit of commercial banks had stood at Rs 97.89 trillion in the comparable fortnight last year (as on October 11, 2019). The year-on-year growth in credit had been 8.8 per cent last year.

With the unlocking process on course, festival season is bring in a rise in demand for credit. The credit demand has been hit badly due to a sharp contraction in the economic activity following the Covid-19 pandemic. India's Gross Domestic Product (GDP) shrank by 23 per cent in the quarter ended June 30, 2020.

Early this week, Rajkiran Rai G, the newly elected chairman of the Indian Banks’ Association (IBA) said credit demand was expected to be much better in the second half of the financial year (October 2020-March 2021). Credit is growing at five-six per cent (year-on-year basis) at the system-level at present. "We can see a slight improvement -- closer to eight or nine per cent -- by March 2021," he said.

"Actually overall in the first half, except for two-three months of lockdown, sanctions were substantial. But the utilisation of working capital fund has been quite low. It (working capital demand) expected to pick up now," Rai said.

The deposit of commercial banks in India rose (Y-o-Y basis) by 10.54 per cent in the reporting fortnight (October 09, 2020), almost on par with 10.51 per cent reported for the previous fortnight. The deposits pool rose by Rs 39,949 crore to Rs 143.02 trillion on October 09, 2020 from Rs 142.62 trillion at end of the previous fortnight, according to RBI data. Last year around the same time (October 09, 2020) it was 9.8 per cent.