Led by commercial papers, credit growth picks up to 14.6 % to September end

Driven by commercial papers, the record low credit growth, it seems, has turned around finally, as outstanding credit in the system till the end of September clipped at 14.6 per cent to Rs 80.09 lakh crore, against 13.6 per cent a year ago, according to Reserve Bank and Sebi data.

At a paltry 5.08 per cent, fiscal 2017 was the worst year in over six decades for bank credit-lowest since fiscal 1953 when it grew at a much lower 1.8 per cent.

But this growth is not led by bank credit but by commercial papers. The year-on-year bank credit growth as of September 15 stood lower at 7.5 per cent as against a deposit growth of 10 per cent, according to RBI's fortnightly data.

Industrial credit rose to Rs 75.45 trillion during the reporting month, up from Rs 66.4 trillion a year ago and Rs 59.36 trillion in September 2016.

Corporate bonds during the same period inched up to Rs 25.87 trillion from Rs 21.95 trillion and Rs 18.66 trillion, while CPs rose to Rs 3.93 trillion from Rs 3.43 trillion and Rs 2.86 trillion, respectively according to regulatory data.

As the industry and the economy inches back to normalcy after the GST disruptions, outstanding loans (non- food credit) from banks to the industry and individuals stood at Rs 80.09 trillion as of September 29, while growth in food credit was lower at 13.6 per cent, show Reserve Bank data.

But a closer reading of the numbers show that this was not driven by bank credit rather the lenders' active participation in the bonds and commercial papers market.

Outstanding credit-loans and bonds and commercial papers (CPs) grew 14.6 per cent on an annual basis by end September. In the same period last year, this segment credit had grown at 13.8 per cent only.

Net corporate bonds outstanding at end-September was Rs 25.87 trillion, up 18 per cent from Rs 21.95 trillion in September 2016, as per latest Sebi data.

Net outstanding on commercial papers stood at Rs 3.93 trillion at end September, up 12.6 per cent from Rs 3.49 trillion a year ago, according to RBI data.

Analysts have been attributing the lower bank credit to a slew of factors like higher credit cost with banks, lender's proclivity to keep away from corporate due to the twin balancesheet issues, and a growing corporate bond market. As a result most corporate are borrowing from the markets rather than from banks.

However, a recent Icra report said that driven by the excess liquidity in the system due to poor credit offtake and also the RBI slashing SLR by another 50 bps to 19.5 per cent, the certificate of deposit (CD) volume plunged to a decadal low of Rs 82,400 crore in mid-September on an annual basis.The CD volume stood at a whopping Rs 2.04 trillion on September 15, 2016.

The year-on-year bank credit growth as of September 15 stood lower at 7.5 per cent as against a deposit growth of 10 per cent. As a result, the CD outstanding declined to Rs 82,400 crore from Rs 2.04 trillion as of September 16, 2016, Icra said in a note.

The agency also warned that a pick-up is unlikely as there is more liquidity with system after the Reserve Bank lowered the SLR to 19.5 per cent in the October policy.

"With weak credit growth for banks and surge in deposit base post-note-ban, banks' reliance on borrowing through CDs has been gradually declining. With recent reduction in statutory liquidity ratio from 20 to 19.5 per cent and expectations of 7-8 per cent bank credit growth, the CD volumes are expected to remain subdued," Icra said.

The certificate of deposit volumes had peaked at around Rs 4.5 trillion during the period between March 2011 and September 2012 since then it has been falling gradually.

In the June quarter, SBI had said around Rs 40,000 crore had moved from the bank's loan book to the markets of which about 70 per cent into commercial papers.