As per the data released by the Reserve Bank of India (RBI), between March 27 and May 22, the non-food credit in the banking system fell by Rs 1.76 lakh crore that is by 1.7%.
Earlier in the week, the ministry of finance said that the state-owned banks alone have sanctioned loans worth Rs 10,361.75 crore under the 100% emergency credit line guarantee scheme (ECLGS) to small enterprises. Some bankers say that the credit is being sanctioned to businesses, however, their application stands limited during this restricted time as the government had imposed restrictions on movement to contain the coronavirus. It is just the beginning of the revival. In other words, we can say there is very little demand for credit.
According to the latest data deposits are growing to Rs 138.3 lakh crore by 10.66% year-on-year (y-o-y) and the credit growth was at a much slower pace of 6.14% y-o-y during the fortnight ended May 22. Experts say the fragile environment for credit has been around since the start of FY20 and the COVID-19 has only worsened the situation.
Moreover, the banks also admit that the previous prediction of credits growth is going to fail this fiscal year. Rajnish Kumar, the chairman of State Bank of India (SBI) on Friday said that the bank has to modify its expected growth in the credit. The bank expected a 12% growth in the credit in FY21.
“We had budgeted for a 12% growth within the loan book, but that seems unlikely within the current scenario. We believe it should be somewhere between 5% and 12%; the midpoint is 7-8% and that is where we should be,” he added.
Care Ratings, in a note dated May 20, said that the loan guarantee by the government for small enterprises and non-bank lenders could stimulate bank credit offtake, however, that improvement may not be substantial.