Non-food credit growth slows in March 



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  • Non-food bank credit growth for March ’21 stood at 4.9% compared with 6.7% a year earlier, as per data on sectoral deployment of bank credit collected by the Reserve Bank of India (RBI) from 33 scheduled commercial banks.
  • This accounted for about 90% of the total non-food credit deployed by all scheduled commercial banks for the month.
  • Growth in Non-food bank credit rose to 6.5% YoY in February 2021. Published monthly by Reserve Bank of India (RBI). Updated till February 2021 (Published on March 31, 2021). The Bank credit in India refers to credit lending by various scheduled commercial banks (SCBs) to various sectors of the economy.

Important  points

  •  Credit growth to agriculture and allied activities accelerated to 12.3% from 4.2%.
  • Credit to industry decelerated marginally to 0.4% from 0.7%. Credit to medium industries registered robust growth of 28.8% compared with a contraction of 0.7%.
  • Growth in credit to micro and small industries decelerated to 0.5% from 1.7%, while credit to large industries contracted by 0.8%, from a growth of 0.6% a year earlier.
  • Within industry, credit to food processing, textiles, gems & jewellery, paper & paper products, glass & glassware, wood & wood products and leather & leather products saw accelerated growth.
  • However, credit to mining & quarrying, rubber, plastic & plastic products, vehicle, vehicle parts & transport equipment, basic metal & metal products, cement & cement products, all engineering, chemical & chemical products and construction contracted.
  • Credit to the services sector decelerated to 1.4% from 7.4%, mainly due to deceleration in credit growth to NBFCs and contraction in credit to professional services.
  • However, credit to the trade segment continued to perform well, accelerating to 11.8% growth compared with 4.6% in March 2020.
  • Slowdown in growth of personal loans continued, decelerating to 10.2% from 15%.
  • But, vehicle loans and loans against gold jewellery continued to perform well, seeing accelerated growth.

 Refer to this article by india macro for charts 

Potential Determinants of Credit Growth:

Asset Quality Stress

○ Since the early 2010s, asset quality of banks in India has worsened gradually, impacting their profitability.

○ Asset quality of Scheduled Commercial Banks (SCBs) is measured as a ratio of gross non-performing assets (GNPAs) to gross advances.

● Nominal GDP Growth

○ Higher growth in nominal Gross Domestic Product (GDP) increases the demand for credit.

The decline in credit growth post 2013 was mainly due to a surge in bad loans, accentuated by a slowdown in GDP.

○ Nominal GDP is an assessment of economic production in an economy that includes current prices in its calculation.

○ Nominal differs from real GDP in that it includes changes in prices due to inflation, which reflects the rate of price increases in an economy.

● Deposit Growth

● Deposit growth has remained highly volatile, especially from the second half of 2015.

● It needs to be noted that a financial institution with a greater availability of funds will be in a better position to provide more credit to borrowers.

● Investment Growth

○ The surge in investment growth has also added to the slowdown in credit growth.

○ To the extent banks invest in securities, lower resources would be available for extending as credit.

○ In India, investments by banks include both investment in government securities as prescribed under the statutory obligations (statutory liquidity ratio or SLR) and voluntary investments held in government securities and bonds/debentures/shares of corporate bodies.

● Interest Rates

○ Higher the interest rates, higher will be the cost of borrowing and hence, lower would be the demand for credit.

● Other Bank-specific Characteristics

○ Such as the size of the bank and capitalisation (an estimation of the value of a business).

Measures Taken

  •  The accommodative stance of monetary policy and reduction in the policy repo rate (starting from 2019) helped cushion the credit deceleration.
  • An accommodative stance means a central bank will cut rates to inject money into the financial system whenever needed.
  • Repo Rate, or repurchase rate, is the key monetary policy rate of interest at which the central bank or the Reserve Bank of India (RBI) lends short term money to banks.
  • Everything from interest rates on loans to returns on deposits is influenced by this crucial rate set by the RBI.
  • The central bank has slashed policy repo rate by 350 basis points to 4% now from 7.50% in March 2013.
  •  After the Asset Quality Review (AQR), since 2015, many hidden bad loans had surfaced, forcing the government to enact the Insolvency and Bankruptcy Code (IBC) for resolution of bad loans.
  • Despite the lockdown, layoffs and closure of many units in the wake of the Covid-19 pandemic, gross NPAs of 31 banks witnessed a decline of 5.25% in absolute terms as the RBI allowed relaxation in the computation of bad loans and announced a loan restructuring scheme.



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