Unlocked India's credit growth slower than when locked

The story: Year 2020 saw India under a complete lockdown for many months. That depressed many economic indicators, including fresh credit creation. No

Unlocked India's credit growth slower than when locked

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• The story: Year 2020 saw India under a complete lockdown for many months. That depressed many economic indicators, including fresh credit creation. Now, despite the low base effect of that, credit growth has been slower as on 21 May, 2021, at just 6%.
• Why so: This is being ascribed to risk aversion and regional lockdowns imposed by states to curb the spread of coronavirus amid the second wave that started in April 2021 and continued in May 2021. Bank credit growth remained at 6%, and was restricted from falling further on account of the various schemes by the government.
• Statistical details:

1. Credit growth for FY22 is likely to remain in low double digit but it will be supported by ECLGS scheme extended till September 2021 and disbursements extended till 31 December 2021.
2. In absolute terms, bank credit increased by Rs.6.1 trillion compared with fortnight ended 21 May 2020, but it declined marginally in comparison with previous fortnight. The incremental credit (April to May) growth for FY22 stood at -0.5% as compared with -1.1% in FY21 and - 0.2% in FY20, which indicates that the incremental growth has been better than last year but is yet to return to normal.
3. Negative to slower growth in large industries and services segment has restricted the overall bank credit growth.
4. The lower growth rate (y-o-y) in deposits can be partly attributed to base effect and fall in deposits rate of banks. Also, the inflows in debt mutual fund and equity mutual fund may have led to the decline in bank deposit value.

 

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