Data given by RBI highlighted that credit growth by public sector banks (PSBs) decelerated sharply to 3.4% in March 2020 from 10.2% a year ago, reflecting stress from impaired balance sheets. Meanwhile, private sector credit growth also slowed down to 13.9% in March 2020 from 17.5% a year ago, mainly attributable to a deceleration in credit growth to the services sector.
RBI said in FY20 report, “Credit demand has been ebbing away across all sectors, despite the post-IL&FS shift among large borrowers, including non-banking financial companies (NBFCs) and housing finance companies (HFCs), away from non-bank sources and towards the banking system for meeting funding requirements.”
It added, “The unabated weakening of economic activity, coupled with deleveraging of corporate balance sheets and risk aversion by
banks due to asset quality concerns, was accentuated towards the close of the year by the pandemic woes, producing a reduction in the incremental credit-deposit ratio. The credit-to-GDP gap remained wide during 2019, reflecting the slack in credit demand.”
To sum up, RBI added, “even as monetary and credit conditions moderated through 2019-20, COVID-19 led to an unusual surge in currency demand, along with deceleration in aggregate deposits. Credit growth weakened during the year, with deceleration in all major sectors.”
Going forward, RBI said, surplus liquidity conditions, coupled with policy rate reductions, are expected to instil confidence, easing financial conditions and incentivising the flow of funds at affordable rates so as to rekindle investment and lay the foundations of strong sustainable growth as the COVID-19 curve flattens and the economy repairs and revives.”
