Bank credit grows as consumers shop in festive season; risk aversion, low demand still a barrier

Government-backed guarantee loan scheme (ECLGS) also played a major role in the sequential improvement in the bank credit.

Higher consumer spendings during the festive season have supported the bank credit growth in the fortnight ending-6 November 2020. The overall credit growth in the banking sector increased marginally compared to the previous fortnight, which indicates that consumers had started purchasing with the arrival of the festive season, said a report by Care Ratings. It rose to 5.7 per cent in the fortnight, compared with 5.1 per cent growth in the previous two fortnights, showed the latest RBI data. Banks had also put extra efforts to raise the credit growth by launching various festival offers.

 For instance, the State Bank of India (SBI), last month, announces a festive season interest rate concession up to 25  basis points on home loans. However, the credit growth is still at low levels compared to the year-ago levels. The credit growths in the same fortnight last year were 8.1 per cent and 8.9 per cent. The subdued level in credit growth is evident in subdued demand and risk aversion in the banking system towards the corporate segment, the Care Ratings report added. The banks are being very selective with their credit portfolios due to asset quality concerns.

On the other hand, the government-backed guarantee loan scheme (ECLGS) also played a major role in the sequential improvement in the bank credit. Banks have sanctioned Rs 2.03 lakh crore, out of which Rs 1.48 lakh crore has been disbursed till October 2020. This is higher than the gross bank credit growth of Rs 1.2 lakh crore in absolute terms from May to October 2020. Adding to it, ECLGS 2.0,  announced for stressed sectors, is further extended till March 2021 to enable MSME’s avail of additional funds under this scheme.

Meanwhile, bank deposits increased by 10.6 per cent in the fortnight ending-6 November, compared with 10 per cent growth in the same fortnight a year ago. This has led to a liquidity surplus of Rs 4.97 lakh crores in Indian banking system. 

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