Risk averse banks continue to lend cautiously; slightly higher bank credit, stable deposit growth

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Deposits could have remained stable over the past two weeks, but compared to last year’s levels, deposit growth has been stronger.

Bank credit edged up during the fortnight ending October 9 from the previous 14 days ending September 25, suggesting risk aversion in the banking sector. Total bank credit at the end of October 9 stood at Rs 103 lakh crore, up from Rs 102.7 lakh crore at the end of September 25, according to data provided by Care Ratings. Compared to the previous year, credit growth recorded an increase of 5.7% year on year. In contrast, the growth of deposits stood at 10.5% on an annual basis and remained broadly stable compared to the previous fortnight.

Although bank credit may have increased slightly, the growth levels recorded during the same period last year were higher. “Credit growth has slowed to 5.1% and 5.7% over the past two weeks, from 8.8% and 8.9% last year, reflecting weak demand and aversion, respectively. at risk in the banking system due to the COVID-19 pandemic, ”the report says. . Asset quality issues have kept commercial banks away during the pandemic. Despite the slow growth in credit, disbursements for medium, micro and small enterprises (MSMEs) remained high under the emergency credit line guarantee scheme. To date, more than half of the amount of the scheme has been sanctioned.

Deposits could have remained stable over the past two weeks, but compared to last year’s levels, deposit growth has been stronger. Deposits increased 10.5% from 9.8% the previous year. “In addition, the excess liquidity of the banking system for the fortnight ended October 9 was Rs 3.86 lakh crores. The excess liquidity can be attributed to the growth of deposits that exceeds that of credit on a persistent basis, ”said Care Ratings.

Going further, the report adds, the liquidity of the banking system is expected to remain in excess thanks to sustained growth in bank deposits compared to slower growth in bank credit growth. The excess liquidity in the banking system could be weighed down by upcoming government borrowing of Rs 28,000 crore by the central government and Rs 34,135 by state governments.

The slowdown in credit growth over the past month has forced the credit-to-deposit ratio to remain fixed at similar levels.

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