Lending slowdown: Bank loans contract after 3 months, shows RBI data

RBI data show bank loans fell by Rs 49,468 crore in mid-October, even as annual growth improved marginally to 11.5 per cent; deposits also declined during the period

After a robust pick up in disbursements till the end of September, bank loans contracted in the first fortnight of October — a first since the fortnight ended July 11, latest data released by the Reserve Bank of India (RBI) showed.

 

Bank loans contracted ₹49,468 crore for the fortnight ended October 17. But year-on-year (Y-o-Y) growth improved marginally to 11.5 per cent from 11.4 per cent a fortnight ago.

 

Deposits also contracted by ₹2.15 trillion and recorded Y-o-Y growth of 9.5 per cent compared to 9.9 per cent a fortnight ago.

 

Bank loans grew over ₹6 trillion in the previous three fortnights, indicating strong demand during the festival season. It was on the back of lending rate cuts by banks and rationalisation of goods and services tax (GST) rates which came into effect from September 22.

 

The RBI has reduced the policy repo rate by 100 basis points (bps) to 5.5 per cent since February to boost loan demand.

 

RBI sectoral deployment of credit data for the fortnight ended September showed that credit to industry recorded a Y-o-Y growth of 7.3 per cent, while credit to ‘micro and small’ and ‘medium’ industries continued to grow in double-digits.

 

Credit to retail loans segment recorded a growth of 11.7 per cent, compared with 13.4 per cent a year ago.

 

This was largely due to moderation in growth of vehicle loans, credit card outstandings, and other retail loans. Banks typically shore up their balance sheets during the last fortnight of any quarter to meet business targets.

 

“Normally, what happens is that at the end of the quarter or half year, banks like to show balance sheet growth. That’s why there’s usually substantial growth in deposits and advances around that time. After the quarter-end, this growth tends to taper,” said the treasury head of a private bank.

 

According to bankers, the adjustments during the first fortnight were mainly for the corporate segment while demand for retail loans stayed strong.

 

Anil Gupta, senior vice-president & group head of financial sector ratings, ICRA, said, “Corporates would have stocked the inventory ahead of the festival season. As this season progressed, possibly the inventory would have got sold and the funding requirement would have reduced.”

 

“During the festive season credit growth usually continues. Festivities started in September itself, and since the GST rationalisation, spending has increased, supporting retail demand — particularly in consumer and vehicle loans. Corporate limit utilisation was higher in early October but has since moderated, while retail momentum continues in October as well. The recent numbers mainly reflect balance sheet adjustments in corporate and large-ticket loans rather than a slowdown in retail credit,” said another banker.

 

A section of the market expects another reduction in the policy repo rate when the six-member Monetary Policy Committee of the central bank meets during December 4-6.