According to data released by the RBI, aggregate bank deposits have hit nearly Rs 143 lakh crore, an increase of Rs 6.8 lakh crore since end-March, while advances are struggling at just over Rs 102 lakh crore, down Rs 1.4 lakh crore from end-March. This has widened the gap between credit and deposit growth to Rs 8.2 lakh crore during the current fiscal.
This rising gap between deposit growth and advances is being filled by investments in government bonds, which now account for nearly 29% of bank deposits after growing 21% year-on-year. Besides the slowdown in investment, there has been a drop in advances since corporates have been de-leveraging as they prepare for slower revenues. Also, a portion of financing has shifted to the bond market, where the cost of funds has come down significantly.
“Credit growth continues to remain at approximately half the level during the last two fortnights at 5.3% and 5.5% (year-on-year), compared to last year’s level of 10.4% and 10.2%, reflecting weak demand and risk-aversion in the banking system due to the Covid-19 pandemic,” CARE Ratings chief economist Madan Sabnavis said. Scheduled commercial banks are being very selective with their credit portfolios due to asset quality concerns and the overall bank credit is expected to remain slower in the near term.
According to CARE Ratings, while banking system liquidity is expected to remain in a surplus position, it will continue to be weighed down by upcoming government borrowings. In the fortnight ended September 25, the central government has borrowed Rs 60,000 crore, while states have raised Rs 23,728 crore from banks.
The RBI data for sectoral deployment of bank credit, which is available until July 2020, shows that non-food credit is down Rs 1.4 lakh crore (-1.5%) from end-March levels. This is despite there being no year-end surge in lending during the last week of March 2020 on account of the strict lockdown. The biggest fall in credit is in the large industry segment (down by Rs 53,134 crore). This is followed by a Rs 48,816-crore drop in credit to micro and small enterprises, while loans in the personal segment are down by Rs 22,418 crore.