Bank credit growth hits a 60-year low of 5.08% in FY17

Growth of bank credit in India plunged to a six-decade low of 5.08 per cent in the financial year 2016-17 weighed down by rising bad loans of banks and weak corporate demand, data released by the Reserve Bank of India showed.

Bank credit had grown at 10.69 per cent a year ago, according to Reserve Bank data.

The last time loans grew slower than this was in 1953-54 when bank credit growth had slowed down to 1.7 per cent.

For the year to March, banks' outstanding credit stood at Rs7,881,000 crore compared to Rs7,501,000 crore as of 1 April 2016, according to RBI data.

A large part of the growth in lending has come in the last fortnight of the month when banks disbursed Rs3,16,000 crore. But even after this last-minute surge, loan growth for the whole year was 5.1 per cent as against 10.7 per cent last year.

Other than bad loans and falling corporate demand, bank credit growth was also constrained by demonetisation. Between October and December 2016, bank credit contracted by 2.3 per cent as against a 2.7 per cent growth during the same period last year.

The decline in bank credit growth comes at a time when the economy has been clipping at close to 7 per cent during the year.

This could be attributed to the rising corporate bond market that companies are tapping even for working capital after overleveraging bank credit.

There has, however, been a decline in the growth of banks' non-performing assets, as annualised fresh NPA generation declined to 4.1 per cent during the third quarter of 2016-17, according to rating agency Icra.

Ratings agency Icra, meanwhile, warned of more pains on the restructured accounts, specially those under the 2/25 scheme, saying that of the 40 large borrowers with a total debt of Rs3,160,000 crore, 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 Rs10,805,000 crore as of 31 March 2017 against Rs9,668,000 crore on 1 April 2016. Deposits with banks had grown at 9.72 per cent in the previous financial year.

As of now, the banking system is saddled with close to Rs14,000,000 crore of bad loans, including those turned dud after restructuring. This is almost 15 per cent of the system.