Thursday, May 26, 2022

Banking Sector Trend: Credit growth has been hit hard

The banking sector, as of January 14, 2022, witnessed a steep decline in business in a fortnight – to be specific, credit growth has taken a massive hit year-on-year (YTD) – of Rs 4.5 lakh crore.

Keeping this in mind, the data suggests, achieving system-level credit growth of 9-10 per cent by the end of FY 2022 (FY22) may be a daunting task. Why? Here’s what the data tells us:

The additional debt so far this year is Rs 5.45 crore. For credit growth of 9-10 per cent annually by FY12, the banking sector would need to increase its loan book by Rs 4.5-5.5 lakh crore. Can this sector replicate 9.5 months of credit growth in 2.5 months?

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M3 Evolution

Measurement of money supply, currency notes held by the public in M3, demand deposits with banks, deposits of all banks with RBI, and net time deposits (certificates of an interest-bearing account that has a maturity date) , for example) of all banks in the country.

M3 growth stood at 9.15 per cent versus 9.91 per cent YoY till a fortnight ago – the slowest growth since March 27, 2020. The deposit ratio for M3 is 80.28 per cent versus 80.74 per cent a fortnight ago.

Fortnightly basis:

(Depreciation of Rs 2.58 lakh crore in deposits and Rs 1.90 lakh crore in debt)

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Deposit change in last fortnight YTD
Deposits are down 1.59% +2.36% +5.75%
Demand deposits fall by 11.4% +12.35% -1.77%
Fixed deposit is down 0.16% +1.05% +6.81%
Food credit down 3.38% (+3.62% +39.88%
Non-food credit up 1.61% +3.28% +4.77%
Total credit is down 1.62% +3.28% +4.97%

year to year change

Compared to the previous year, deposits have grown by over 9.28 per cent and advances have grown by over 8 per cent. But food credit is down 1.46 per cent year-on-year, while non-food credit is up 8.12 per cent.

The credit-deposit ratio stands at 71.93 per cent versus 71.95 per cent a fortnight ago.

(edited by : Yashi Gupta,


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