Bank credit offtake has touched a three year high in November implying some early signs of revival in loan demand.
Banks loans including procurement credit and loans to individuals farmers and businesses rose 9.64% to Rs 79.6 lakhc crore as of November 24’17, compared to 6.6% growth in same period in 2016 and 9.3% in 2015, the latest Reserve Bank of India data indicated.
Significantly, there is a revival in corporate loan demand which was seen contracting. For over two years now, growth in banks’ loan book is being driven by retail loans. But since October, the trend in growth in loan to large corporate has turned positive after more than a year of contraction. ” There has been some pick up in credit growth in recent months” said RBI governor Urjit Patel in his monetary policy statement on Wednesday. ” Recapitalisation of public sector banks may help improve credit flows further”
“Latest data on bank credit and adjusted bank credit and total financial resources flow suggest that we are in the uptick on credit growth,” Patel said addressing media after the monetary policy announcement. “Credit is flowing in more than what was the case in October. As economy picks up, demand for credit should go up and there is enough supply to ensure that lack of credit is not in the way of supporting higher growth.”
Bankers expect a pick in loan demand during the second half of the fiscal for a variety of reasons. “The second half of the year is traditionally a better one because most of the renewals happen then” B Sriram, MD State Bank of India in a recent interview to ET. ” Oil drawings happen in the second quarter, fertiliser subsidy happens towards the end of the year, some of the agro-commodity business tend to pick up in the second half, so all these things will bring in more traction. But we are yet to see a strong project pipeline, which is likely to pick up when the recent government measures begin to bear fruit. Generally, project finance takes 2-4 years for”
The Reserve Bank has noted that while there has been weakness in some components of the services sector such as real estate, the central bank’s survey indicates that the services and infrastructure sectors are expecting an improvement in demand, financial conditions and the overall business situation in Q4. This could also added to the loan demand during rest of the fiscal year.