Recent surge in bank credit growth bodes well for the economy (RBI study)



The surge in credit growth in recent months despite the second wave of COVID-19 bodes well for the economy, according to an article published in the latest RBI bulletin.

The growth of bank credit has fluctuated significantly over the past fifteen years.

The period between 2007-08 and 2013-14 could be characterized as a period of bank credit boom in the Indian economy, as non-food credit recorded double-digit growth, mainly driven by strong credit growth in the Indian economy. industrial sector, according to the article.

“The dominant group and other groups of banks have lent aggressively to the industrial sector as well as to other sectors,” he said, adding that within industries, infrastructure and basic metals industries and metal products accounted for a significant portion of both banking groups’ credit demand during the credit boom period.

Subsequently, however, the credit cycle reversed with a shift in the sector deployment of bank credit.

The article indicates that between 2014-15 and 2020-2021, overall credit growth slowed, mainly due to a reversal in credit growth to the industrial sector.

The overall growth in non-food credit from 2014-15 to 2020-2021 was almost entirely driven by the expansion of credit to non-industrial sectors, particularly loans to the retail segment in the form of personal loans.

The active participation of both the dominant group and the other group of banks stimulates the growth of credit to non-industrial sectors, according to the article.

The sharp slowdown in industrial credit deserves attention and measures to accelerate credit drawdowns commensurate with appropriate risk-taking, a number of which have already been taken by the government and the RBI, could thaw the credit market. for the industrial sector. This can help revive the growth momentum derailed by the COVID-19 pandemic, he said.

“After witnessing a significant slowdown in credit use in 2019-2020 and 2020-21, there has been a slight increase in credit growth in recent months despite the second wave of COVID-19, this which bodes well for the economy, ”the article said.

Another article published in the newsletter titled “Private Business Investment: Growth in 2020-21 and Prospects for 2021-22” said that the investment intentions of Indian private companies remained sluggish, as evidenced by the drop in the number of news announcements and completion of projects.

The article pointed out that uncertainties related to the pandemic negatively impacted appetite for new projects in 2020-2021 and hampered the on-time completion of pipeline projects.

In 2021-2022, demand for new projects would shape the outlook for private investment, as well as the advancement of projects already underway, he added.

The central bank, however, said the views expressed in the articles are those of the authors and do not represent those of the Reserve Bank of India.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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