RBI Financial Stability report: Credit Growth slows, hits a low of 8.7% in September

On December 26, Icra said in a report that bank credit is expected to decelerate sharply to 6.5-7.0% during FY20 from 13.3% during FY19 on account of limited incremental credit growth during the financial year so far.

According to the Reserve Bank of India’s Financial Stability report, the aggregate growth in banking sector’s gross loans and advances slowed from 13.2% in March 2019 to 8.7% in September 2019.

The report said, “Given the weakening economic growth, the underlying credit buoyancy and its nuances are of relevance.” It is evident that there has been an across-the-board dip between March and June 2019, RBI added. Credit growth during the period was driven by private sector banks. Private sector banks registered double digit credit growth of 16.5%, while that of the public sector banks (PSBs) was 4.8%.

The capital adequacy ratio of banks improved significantly to 15.1% in September 2019 after the recapitalisation of PSBs by the government.

The asset quality of agriculture and services sectors, as measured by their GNPA ratios, deteriorated in September 2019 as compared to March 2019.

According to RBI, the denominator effect of declining credit growth has added to risk of gross non-performing assets (GNPAs) rising by next year. Macro-stress tests for credit risk show that under the baseline scenario GNPA ratio may increase from 9.3% in September to 9.9% in September, 2020.

On December 26, Icra said in a report that bank credit is expected to decelerate sharply to 6.5-7.0% during FY20 from 13.3% during FY19 on account of limited incremental credit growth during the financial year so far.

Incremental bank credit has increased by only Rs 80,000 crore during FY20 till December 6, 2019 to Rs 98.1 lakh crore, compared to an increase of Rs 5.4 lakh crore and Rs 1.7 lakh crore during previous corresponding periods of FY’19 and FY’18 respectively, Icra said.