Bank loans shrink by Rs 61,000 crore in fortnight after demonetisation

Showing effect of demonetisation, bank credit in India shrunk by Rs 61, 000 crore (0.8% in fifteen days ended November 25, 2016) on the demand destruction. In contrast, banks are trying to cope with the huge inflow of money as people deposited Rs 4,03,000 crore during the same period.

The outstanding credit of banking system in India was Rs 72,92,200 crore at end of November 25, 2016, according to Reserve Bank of India data. The year-on-year growth in credit was just 6.6%, down from 9.3% a year ago.

Bank executives said there has been a sharp dip in the demand for credit as the economy began to feel adverse effects of the decision to withdraw legal tender status of old currency notes (Rs 500 and Rs 1,000). There is not much change even in the current fortnight (ended December 09, 2016).

Also, the priorities for banks staff across the country has changed to managing the volume of work to accept deposits, exchange and withdrawal of old notes, and ATM network. This impacted the normal work including retail lending, SME, agriculture, and large credit, a senior public sector bank executive said.

Bank credit had dipped by Rs 59,000 crore in previous fortnight (Ended November 11, 2016), showing the initial impact of demonetisation decision on November 8.

The deposits with commercial banks rose by 4% in one fortnight to Rs 1,05,17,700 crore. This pushed the annual growth in deposits to 15.9% as against 9.8% a year ago. In fortnight ended November 11, 2016, deposits had grown by Rs 1,30,900 crore (1.3%), RBI said.