You are here: Home » Finance » News » Banks
Business Standard

At 5%, FY17 bank credit growth slowest in 60 years

In the year to March 2016, banks reported a credit growth of 10.69 per cent at Rs 75.30 trillion


Press Trust of India  |  Mumbai 


Saddled with high bad debt and weak corporate demand, credit growth plunged to a whopping six-decade low of 5.08 per cent in the financial year 2016-17, as against 10.7 per cent a year ago, according to the Reserve Bank data.

For the year to March, banks' outstanding credit stood at Rs 78.81 trillion compared to Rs 75.01 trillion as of April 1 2016, show the central bank data.

The numbers are surprising as the economy has been clipping at close to 7 per cent during the year under review and interest rates have been heading south.

One main reason for the massive plunge is the rising corporate bond market from where companies are tapping funds even for working capital as most of them could have been turned away by due to their over-leveraged balance sheets.

It can be noted that the credit growth in financial year 2016-17 is the lowest since 1953-54 when it had inched up by a paltry 1.7 per cent, according to the apex bank data.

In the year to March 2016, reported a credit growth of 10.69 per cent at Rs 75.30 trillion.

According to domestic rating agency Icra, the outlook on the asset quality of the banking sector seems to be weak even as the fresh non-performing asset (NPA) generation rate continues to show signs of moderation.

The annualised fresh NPA generation declined to 4.1 per cent during the third quarter of 2016-17 compared to 10.7 per cent during the fourth quarter of the financial year 2015 -16, 6.1 per cent during the first quarter of 2016-17 and 5.8 per cent in the second quarter of 2016-17, Icra had said in a report.

Fresh NPA additions to gross NPAs during Q3 of fiscal 2017 inched down to Rs 26,400 crore compared to Rs 1.36 trillion during the first nine months of the fiscal 2017, partly aided by higher write-offs during the last quarter.

Icra has projected gross NPAs to increase to Rs 7.5-7.7 trillion or 9.7-10 per cent for March 2017 and Rs 8.2-8.5 trillion or 9.9-10.3 per cent for fiscal 2018 with upside risks in case of slower resolution of SDR accounts, leading to higher slippages.

Warning of more pains on the restructured accounts, specially those under the 2/25 scheme, Icra said, of the 40 large borrowers with a total debt of Rs 3.16 trillion, 29 per cent of the debt turned NPA till December 2016.

Bank deposits, however, grew by 11.75 per cent during fiscal 2017, helped by large flow of funds into the banking system after demonetisation of high value notes last November.

Outstanding bank deposits stood at Rs 108.05 trillion as of March 31, 2017 as against Rs 96.68 trillion on April 1, 2016. Last financial year deposits grew 9.72 per cent.

It can be noted that the banking system is saddled with close to Rs 14 trillion of bad loans, including those turned dud after restructuring. This is almost 15 per cent of the system.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Sun, April 16 2017. 13:07 IST