Incremental bank loans between April and August this year contracted by Rs 91030 crore, compared to a growth of Rs 1.5 lakh crore in the same period a year ago, latest Reserve Bank of India data showed.
“It is reflective of two things. One, companies are not borrowing much due to low investment” said Madan Sabnavis, chief economist at Care Ratings. “Second, banks are not keen to lend to industry and prefer retail, where there is an improvement. Overall, it reflects low growth tendencies”
An analysis of the loan growth pattern during April-August over the last ten years shows that credit contraction in the period are rare, excepting April- August 2017, when it contracted by Rs 92,700 crore. This implies that, after the enactment of bankruptcy laws in 2016, enabling banks quicker resolution of bad loans, lenders have been cautious extending loans.
“Bank balance sheets tend to spike up in March and September end. Post-March, we typically have a contraction through the lean season. September end is when we should see a busy season spike,” said Ananth Narayan, assistant professor of finance at S P Jain Institute of Management Studies. “I think what is worrisome is the dip in the year-on-year growth numbers, which are more comparable” he added.
NBFC lending has dipped last September after the crisis at infra-lender IL& FS was unearthed. Overall bank lending on an year-on-year basis has actually dipped, both in percentage terms to 10.2% from 13.4 percent in the same period a year ago, as well as in absolute terms to Rs 9lakh crore, compared to Rs 10.4 lakh crore the year ago. “This is probably a combination of both the general economic slowdown, as well as banks reluctance to open the spigots,” Narayan said.
But the sops that the government announced on Friday, including a steep reduction in corporate taxes aimed at reviving the economy, could lift credit demand. “I think the next two-three months will be interesting and critical. Need to see if lending picks up, post the slashing of the corporate tax rates and the promise of shamiana banking into Diwali” Narayan said.