Risk averse banks continue to lend with caution; bank credit up marginally, deposit growth stable

Deposits might have remained stable during the last two fortnights but compared to last year’s levels, deposits growth was stronger.

Bank credit grew marginally during the fortnight ending October 9 when compared to the previous 14 days that ended September 25, hinting at risk aversion in the banking industry. Total bank credit at the end of October 9 stood at Rs 103 lakh crore, compared to Rs 102.7 lakh crore at the end of September 25, data sourced by Care Ratings shows. When compared to the previous year, credit growth registered an increase of 5.7% on-year. On the other hand, deposits growth was at 10.5% on-year basis and remained largely stable from the previous fortnight.

While bank credit might have grown marginally the growth levels registered during the same period last year were higher. “The credit growth decelerated to 5.1% and 5.7% during the last two fortnights, compared to last year’s level of 8.8% and 8.9% respectively reflecting weak demand and risk aversion in the banking system due to COVID-19 pandemic,” the report said. Asset quality concerns have kept commercial banks on the edge during the pandemic. Despite the slow credit growth, disbursements for medium, micro and small enterprises (MSME) continued to be strong under the Emergency Credit Line Guarantee Scheme. Over half the amount under the scheme has been sanctioned so far.

Deposits might have remained stable during the last two fortnights but compared to last year’s levels, deposits growth was stronger. Deposits increased by 10.5% compared with 9.8% in the year ago period. “Moreover, the liquidity surplus in the banking system for the fortnight ended October 09 stood at Rs 3.86 lakh crores. The liquidity surplus can be ascribed to deposit growth outpacing credit growth persistently,” Care Ratings said.

Going further, the report adds, the banking system liquidity is expected to remain in a surplus position aided by sustained growth in bank deposits as against slower growth in the bank credit growth. Liquidity surplus in the banking system could be weighed down by the upcoming government borrowings of Rs 28,000 crore by the Central government and Rs 34,135 by state governments.

Slower growth in credit during the last month has forced the credit-to-deposit ratio to remain fixed at similar levels. 

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