What are Bank Credit Growth Figures Indicating?

What are Bank Credit Growth Figures Indicating?
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September’s bank credit growth figures are out, and we have seen a push in credit growth across sectors. Let’s explore what the statistics indicate.

What’s Happening?

On 31st October 2022, the Reserve Bank of India published the credit growth figures for September 2022. The numbers reflect a surge in demand before the festive season. The demand for credit has seen a robust increase compared to the previous year. 

When credit growth numbers are more favourable than the previous year, it is said to be an indicator of growth. 

Why?

We individuals borrow money from banks to fund our needs like buying a home, a new vehicle or basic shopping. Similarly, non-banking financial companies borrow money from banks to lend to their customers. Companies take loans to finance working capital needs. Hence, a rise in bank credit indicates the financial restoration of the economy. 

Credit Growth Figures

The key credit growth drivers were micro, small and medium enterprises (MSMEs). The disbursements to micro and small enterprises have grown by 27% YoY, which was 13.1% a year ago.  

The service sector is second in line, contributing to this huge credit growth. The disbursements have accelerated to 20% in September 2022 from just 1.2% a year ago. The improved credit off-take drives this massive demand for NBFCs and trade sectors.

Thirdly, the non-food bank credit increased by 17% in September 2022, compared with 6.8% a year ago.undefined

Deposits Lag

With credit growth, deposits should also increase. This is because banks rely on deposits to generate loans. But, since April 2022, deposit growth has not surged as strongly as credit growth. According to Livemint, deposits have grown slightly by 9-10% since April. 

Hence, banks are finding ways to attract more deposits by offering floating-rate FDs and higher interest rates. undefined

What’s Next?

According to Business Standard, the rise in input cost due to inflation is a factor because of which we see industries drawing credit from banks. 

A rise in demand for loans is indeed a good signal. But, consistent rate hikes might affect the trend. 

That’s it for today. Don’t forget to share the newsletter with your friends.

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