Bank lending activity now stronger than last year; credit growth at 6.6% in February

The credit growth of banks ranged between 6.5% to 7.2% in April 2020.

Banks gave out credit at a faster rate during the fortnight ending February 12, as compared to the same period last year, helped by an increase in retail loans. The bank credit growth was recorded at 6.6%, marginally higher from the 6.4% recorded last year, a report by CARE Ratings showed. With this, the credit growth is back in the range that was last seen during the early months of the pandemic. The credit growth of banks ranged between 6.5% to 7.2% in April 2020.

Bank credit growth strong

Bank credit during the fortnight ended February 12 stood at Rs 107 lakh crore, up from Rs 105 lakh crore at the end of December 2021 but at par with the previous fortnight ending January 29. “The retail, agriculture and allied segment have driven overall credit growth in January 2021 growing by 6.7% and 9.5% respectively,” the report showed. The retail segment accounted for 29% of the total credit, against the 28.1% share recorded in the year-ago period. Industrial segment, however, had the largest piece of the pie accounting for 29.6% of the total credit. The services sector accounted for 28% of the total.

“Trade and tourism, hotels and restaurant segment registered a (credit) growth of 15.7% and 8.9% respectively,” the report said. The professional services segment registered a de-growth of 25%, computer software segment too registered de-growth, making them the only two segment to slip.

Mutual fund redemptions aid deposit growth

Deposits with banks have also increased during the period under review. “Deposit growth increased during the fortnight ended February 12, 2021, compared with 11.1% growth registered during the fortnight ended January 29, 2021, and also as compared with the previous year,” CARE Ratings said. The report further added that the outflows in debt mutual fund and equity mutual fund could support the rise in bank deposits. Of these deposits, time deposits grew at 89% while demand deposits account for the remaining 11%.

With deposit growth outpacing credit growth in the banking system, liquidity remained in a surplus position. “The outstanding liquidity in the banking system as of February 26 aggregated Rs 6 lakh crore, higher than a month ago level of Rs 5.76 lakh crore,” the report said.