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Rediff.com  » Business » The untold story: Credit growth slows after note ban

The untold story: Credit growth slows after note ban

By Abhijit Lele
January 20, 2017 11:12 IST
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Banks lend ₹ 60,000 cr in 8 weeks since Nov 8; Y-o-Y credit expansion slows further.

Illustration: Dominic Xavier/Rediff.com.

In the eight weeks since demonetisation, banks have lent just over ₹ 60,000 crore which is way below the ₹ 2,66,900 crore banks disbursed in the same period last financial year (FY16). 

According to Reserve Bank of India data, the outstanding loans of the banking systems stood at ₹ 73,53,280 crore at end of November 11, 2016. It rose to ₹ 74,13,415 crore by January 6, 2017.

Banks executives said while the demand for credit before November 8 was weak, the economic shock from demonetisation has further hit demand and business sentiment. 

The year-on-year growth in credit was 9.1 per cent before the decision to abolish legal tender status for old high value notes of Rs 500 and Rs 1,000 crore was taken on November 8. 

The pace of credit offtake slipped to 5.14 per cent by January 6, 2017.  

This has made many banks rework their credit growth targets for 2016-17. State Bank of India chairman Arundhati Bhattacharya said earlier that her bank had indicated a credit growth of 11-12 per cent in FY17 which will now grow at 8-9 per cent. 

Private sector lender Axis Bank in its conference call after announcing third quarter results indicated moderation in credit growth for the current year. 

The story for deposits is exactly the opposite. Banks saw an elevated flow of deposits at ₹ 4,69,371 crore in the eight weeks after demonetisation. The outstanding pool of deposits was ₹ 1,05,84,171 crore as on January 6, 2017, up from ₹ 1,01,14,800 crore.

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Abhijit Lele
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