Bank credit growth improved to 6.1% year-on-year for the fortnight ending July 3 even as deposit growth declined, according to the latest data from the Reserve Bank of India. With the gradual unlocking in all states, bank credit increased by 0.9 million rupees lakh compared to the previous fortnight. As of June 18, growth in bank credit stood at 5.8% over one year.
The retail and agricultural sectors continue to drive overall credit growth while slower growth in the industrial and service segments has limited overall credit growth.
According to Care Ratings, bank credit growth continues to remain subdued, which can be attributed to risk aversion and the continued parking of excess liquidity with the RBI.
“Credit growth for FY22 is expected to remain weak in double digits with widely expected growth in S2FY22, driven by the gradual expansion of economic activities,” he said.
The recent additional measures taken by the government to alleviate the stress of the pandemic are expected to improve the use of credit. However, downside risks include limited investment plans, partial restrictions in key states and concerns about the third wave, which could impact the industrial and service segments, the rating agency said. .
In contrast, the growth of deposits slightly decreased to 9.8% during the fortnight ended July 2, 2021. During the previous fortnight, the growth of deposits stood at 10.3%. That said, deposit growth is still lower than the 11.0% year-on-year growth recorded the previous year. According to Care, bank deposits have increased by about ??14 lakh crore over the past year and hit a new high in the past 24 years.
As of July 2, 2021, the excess liquidity in the banking system stood at approximately Rs.6.0 lakh crores. The main reason for excess liquidity is that the growth of deposits consistently exceeds that of credit. The excess cash is parked with the RBI as part of the reverse repo window, earning just over 3% near the banks’ savings deposit rate.
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