In a setback, both incremental bank credit and deposits contracted over the past 12 weeks of the current fiscal year raising concerns on whether credit offtake will remain subdued like the previous year.
While incremental bank deposits contracted by 0.3 per cent, bank credit growth fared worse, contracting by 1.2 per cent. For the past two years, bank credit growth has been surpassing deposits growth, putting pressure on banking system liquidity and even resulting in a liquidity deficit situation.
Banks are unable to mobilise deposits as savers continue to flock to small savings schemes and alternative channels including equities and bonds hoping for higher returns.
For the week ended June 7, bank credit and deposits slowed to 9.92 per cent and 12.31 per cent at Rs 96.52 lakh crore and Rs 125.40 lakh crore respectively, according to provisional data provided by the RBI. A fortnight ago, bank credit was Rs 85.94 lakh crore, while deposits were Rs 114.08 lakh crore.
Disappointingly, non-food credit growth continued to fall for the fifth straight fortnight to 12 per cent over the previous year to touch a 14-month low.
Meanwhile, granular data shows mixed signals on the revival of credit growth. For instance, non-food credit shot up by nearly 12 per cent in April 2019 as against 10.7 per cent a year before, while loans to agriculture and allied activities rose 7.9 per cent compared to 5.9 per cent during the same period under review.
While overall credit to industry clocked in at a slim 7 per cent — a significant improvement over the previous year’s 1 per cent growth — individual sectors didn’t fare well. Credit to the services sector jumped 17 per cent, but was lower than last year’s 21 per cent, while personal loans growth slowed to 16 per cent as against 19 per cent a year ago.
Higher government borrowings
The central government has borrowed H2 lakh crore since the beginning of the current fiscal, which is 70 per cent higher than its borrowings during the corresponding period a year ago. According to publicly available data, the union government has borrowed H17,000 crore in each of the last twelve weeks.
In stark contrast, states’ borrowings so far stood at H0.68 lakh crore, marginally higher by 1.9 per cent over the previous year. However, combined government borrowings printed lower last week than the previous week. While the central governments’ market borrowings remained around H17,000 crore, states took just about H1,400 crore.