Demonetisation: FY17 credit growth could slip to 6%:Jefferies

Research firm says private investments have been weak and are unlikely to improve

Credit growth which has been languishing in single digits for several quarters may slip even further to six per cent in this financial year as a result of demonetisation, say Jefferies. The research firm has halved the credit growth outlook for this financial year to 6 per cent from 12 per cent.

"Beyond the cash-freeze worries, discretionary consumption takes a hit, exacerbated by a squeeze as untaxed currency moves out of the system or its velocity slows down and demand/sentiment adjusts to the new reality. This could take anywhere between two to six quarters, if not longer. Private investments have been weak and unlikely to improve under these conditions," said Nilanjan Karfa and Avinash Singh of Jefferies.

As a result of this factor the analysts have cut system loan growth to six per cent (FY17), nine per cent (FY18) and 15 per cent (FY19) as compared to 12 per cent, 15 per cent and 15 per cent respectively. As per the Reserve Bank of India data, credit offtake had touched a record low of 7.2 per cent in June 1994.

This comes at a time when current and savings account deposits have swelled up in the wake of demonetization and expectations of lending rate cuts have become stronger. In fact in his recent speech, Prime Minister Narendra Modi also announced that there will be cheaper loans soon. However, if analysts are to be believed there may not be enough takers for these cheaper loans.

Bank credit offtake had been sluggish and had remained in single digits as corporate credit growth has been slow. Even though, banks especially the private sector lenders have seen a robust growth in retail credit it is the dismal growth in corporate lending that has pulled down overall credit growth. The corporate credit has been mainly limited to working capital and loan for new investments have been limited.

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