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Bank Credit Growth Hits 10%

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Non-food credit growth in India’s scheduled banks hit the 10 percent mark year-on-year, according to fortnightly data available with the Reserve Bank of India. In the fortnight ended Nov. 10, this number stood at 9 percent.

Outstanding bank credit, excluding loans to food procurement agencies, stood at Rs 78,87,513 crore in the fortnight ended Nov. 24, higher than Rs 71,69,974 crore a year ago, the regulator’s data showed.

Including food credit, the fortnight recorded a growth of 9.6 percent, the highest since Sept. 30 last year when the banking system had reported a growth of a little over 10 percent, according to data collated by Bloomberg.

Base effect may have also played a part in making the current growth numbers look better. On Nov. 25, 2016, overall credit growth for scheduled commercial banks had hit 6.63 percent year-on-year.

The rise in bank credit growth will be positive for India’s banking sector facing lower loan demand and severe capital constraints.

Loan growth had tapered off due to mounting non-performing assets in the banking system and a slowdown in the economy. The NPA situation worsened for the banking system after the RBI conducted an asset quality review in October 2015, which rapidly increased the level of stressed assets on bank books.

To conserve their capital base, a large number of public sector banks reduced the pace at which they sanctioned loans. This allowed private sector banks and non-banking finance companies enough room to grow their loan books rapidly.

State-owned banks contributed 56.2 percent of the loan market, while private sector banks and non-banks sanctioned 25.7 percent and 17.7 percent respectively, according to data collated by Crisil as on March 31, 2017. Government financial institutions controlled the remaining loans.

Following the AQR, the banking system largely stayed away from lending to large value corporate accounts and begun focussing on growing the retail book. Apart from housing and retail auto loans, unsecured credit has also been witnessing a considerable increase in growth.

Demonetisation too played a major role in warding off loan demand as smaller companies were hit the most by the non-availability of cash.

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