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    Banking sector trend: Credit growth takes a huge hit

    Banking sector trend: Credit growth takes a huge hit

    Banking sector trend: Credit growth takes a huge hit
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    By Abhishek Kothari   IST (Published)


    In our banking sector review as of January 14, 2022, we found the banks' credit growth has taken a hit of Rs 4.5 lakh crore YTD and by the end of this fiscal year, it'd be difficult for the banks to go back to credit growth of 9-10 percent.

    The banking sector, as of January 14, 2022, saw a massive decline in business over a fortnight—the credit growth has taken a huge hit year-to-date (YTD)—of Rs 4.5 lakh crore, to be specific.
    Keeping this in mind, data suggests, it may be a daunting task to achieve system-level credit growth of 9-10 percent by the end of the financial year 2022 (FY22). Why? Here’s what data tells us:
    So far this year, the additional credit is at Rs 5.45 crore. For a 9-10 percent YoY credit growth by FY22, the banking sector would need to build its loan book by another Rs 4.5-5.5 lakh crore. Can the sector replicate credit growth of 9.5 months in 2.5 months?

    M3 growth
    The measure of money supply, M3 consists of currency notes held by the public, demand deposits with the banks, deposits of all the banks with the RBI, and the net time deposits (an interest-bearing account that has a maturity date, certificate of deposit, for example) of all the banks in the country.
    The M3 growth was at 9.15 percent versus 9.91 percent YoY till a fortnight ago – the slowest growth since March 27, 2020. The deposit to M3 ratio is at 80.28 percent versus 80.74 percent a fortnight ago.
    On a fortnight basis:
    (Deposits declined by Rs 2.58 lakh crore and loans by Rs 1.90 lakh crore)
    DepositsChange, in last fortnightYTD
    Deposits are down 1.59%+2.36%+5.75%
    Demand deposits are down 11.4%+12.35%-1.77%
    Time deposits are down 0.16%+1.05%+6.81%
    Food credit is down 3.38%(+3.62%+39.88%
    Non-food credit is up 1.61%+3.28%+4.77%
    Overall credit is down 1.62%+3.28%+4.97%
    YoY change
    As compared to the previous year, the deposits have risen over 9.28 percent and advances have risen over 8 percent. But food credit is down 1.46 percent YoY whereas the non-food credit is up 8.12 percent.
    The credit-deposit ratio is at 71.93 percent versus 71.95 percent a fortnight ago.

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