Coronavirus impact: Credit growth likely to remain modest, says RBI

MPC report says better transmission of rates would remain priority.

With the Covid-19 pandemic posing huge risks for the Indian economy, the credit growth is likely to remain modest, reflecting weak demand and risk aversion, said the Reserve Bank of India (RBI) in its monetary policy (MPC) report.

“Better transmission of monetary policy impulses to the credit market would remain a priority,” the RBI said.

Credit offtake in the economy has been fairly slow with non-food credit growing at 6.1 per cent in FY20 (up to March 13), compared to 14.4 per cent growth in the same period last fiscal year.

According to RBI, the slowdown in credit growth was spread across all banks, especially those in the private sector. However, in the recent period (December 2019-March 2020), the public sector banks (PSBs) have seen a slight uptick in credit offtake.

The data shows that of the incremental credit extended by scheduled commercial banks (SCBs) during the year (March 15, 2019 to March 13, 2020), 62.6 per cent was provided by private sector banks, 36.6 per cent by PSBs, and 0.8 per cent by foreign banks.

The report says banks’ investment in commercial papers (CPs), bonds, debentures, and shares of public and private corporates, which is a part of non-SLR (statutory liquidity ratio) investment, has gone down in the second half of FY20 (up to March 13) than a year ago because of lower investments, resulting non-food credit growth being lower.

“With credit offtake remaining muted and non-SLR investments declining, banks increased their SLR portfolios. Banks held excess SLR of 8.4 per cent of net demand and time liabilities (NDTL) on February 28, as compared with 6.3 per cent of NDTL at the end of March 2019,” RBI said.