Bank loan growth slows further to 4.8 per cent

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KOLKATA: Growth in bank loans, a bellwether for economic activities, has fallen to below 5%, raising doubts over quicker recovery in factory output.

Reserve Bank of India data showed that bank loans for the fortnight ending February 17 grew by 4.8% year-on-year to Rs 75 lakh crore, compared to 11.2% rise in the year ago period.

This is the slowest fortnightly loan growth recorded since 2006.

“The poor credit growth reflects less demand from industries because of low capacity utilisation and low consumer spending,” said Madan Sabnavis, chief economist at CARE Ratings.

“Banks are also not ready to lend to non-retail segments because of asset quality concerns,” he said.

Sticky loans made up 9.1% of total advances as of September 2016 and there are over a dozen public sector banks with gross NPAs above 10%.

“The slowdown in economic activity has weighed on demand for credit among retail borrowers. This trend is likely to continue over the next few months. We also expect asset quality to deteriorate in the current quarter, but Indian banks have sufficient buffers to withstand the impact,” said Moody’s Investors Service in a note.

Banks’ aggregate deposits for the same period grew a healthy 12.8% to Rs 105 lakh crore, while avenues to deploy loans have shrunk.

A report published by the CARE Ratings on Friday said that growth in credit to manufacturing has fallen and this is evident across the three segments — small, medium and large.

The core sector grew 3.4% in January, which is a five-month low, and is expected to dent industrial growth further.

The eight infrastructure sectors of cement, coal, crude oil, electricity, fertilisers, natural gas, refinery products and steel have 38% weight in the Index of Industrial Production (IIP), which contracted 0.4% in December, largely on account of demonetisation led slump in production of capital goods and consumer goods. IIP for January will be released on March 10.