New bank credit falls 64% in fiscal year 20

In Mumbai: Banks issued new loans, through bonds and loans, of only Rs 6 lakh crore in fiscal year 20, a 64% drop from Rs 16.8 lakh crore that they delivered to borrowers in fiscal year 19. Loans Banking declined due to an economic slowdown, corporate deleveraging coupled with the fact that lenders closed their operations during the last week of March, which is the busiest week in any year.

According to data published by the Reserve Bank of India (RBI), there has been a sharp drop in bank investment in non-government debt, which has accentuated the slowdown in the flow of resources to the corporate sector. Banks ended fiscal year 2016 with outstanding loans of Rs 103 lakh crore, which is an increase of only 5.8% over Rs 97.26 lakh crore in the previous year.

If deposit growth was low, growth in investments in corporate bonds was equally slow at 5% with the value of investments outstanding at Rs 32.2 lakh crore. Investment in 28% decreased to Rs 3.45 lakh crore.

The sharp decline in incremental credit during fiscal year 2020 was fueled by slowing economic growth and increased risk aversion among lenders, the group chief said (financial sector ratings). Furthermore, corporations and non-bank financial companies have replaced some of their national loans with external loans (ECB).

ECB approvals increased 70% year-on-year from February 2020 to $ 58.2 billion compared to $ 34.2 billion in the 12 months ending February 2019. Division into sectors shows that until the end As of February 2020, loans to the metals segment have declined, while personal loans have boosted bank credit.

According to Srinivasan, bank credit would increase faster in fiscal year 20. Expectations of an increase in growth during fiscal year 21 are driven by higher demand for credit amid weakening cash flows from borrowers due to Covid-19-induced stress, he said. Capitalizing interest for the moratorium period offered by lenders during closing would also increase outstanding loans.

ICRA has said that the incremental flow of credit from banks, through commercial paper (CP) and outstanding corporate bonds could increase by Rs 7.3-9.7 lakh crore during fiscal year 21. This will be a sequential growth of 22-61 % over FY20, albeit on a low basis of Rs 6 lakh crore. Another driver of bank credit during the current year could be the reduced dependence on external indebtedness along with the RBI that provides banks with cheap refinancing through long-term repos to invest in corporate bonds.