Loan growth continues to remain tepid: RBI data

Indian banking system loan growth continues to be tepid even as some pockets like loans to retail and medium sized firms picked up in September.

Bank loans rose 5.1 per cent ( year-on-year) to Rs 102.2 lakh crore as of October 23, according to the latest RBI data. Overall loan growth has remained below the 6 per cent mark ever since the economy went into a lockdown following the COVID-19 pandemic.

Several regulatory and policy measures, easing liquidity conditions, lowering of policy rates and the easing of lockdown conditions have helped revive credit demand in certain sectors. Loans to medium enterprises rose 14 per cent, loans against shares and securities rose around 20 per cent, according to the latest data on sectoral deployment of bank credit until September. Besides, housing loans and other retail loans are also picking up, data indicated. But

“Bank lending rates to the productive sectors including housing have declined and a robust revival, however, would depend on the revival of demand,” said external member of the monetary policy committee (MPC) Shashank Bhide in the latest minutes. “Revival of consumer demand would require restoration of confidence in the safety in participation in normal economic activities and availability of health care. Public investment in improving infrastructure to achieve these goals would help build consumer confidence”

Even as central bank has lowered key policy repo rates by 140 bps (basis points, one bps is 0.01 %)), these rates have transmitted only on short-term rates. While loans for project investments are linked to long term rates, which continue to be high. “I believe that excessively high long term rates are inflicting damage to the economy” said external MPC member J R Varma. ” A significant part of the easing of policy rates is not being transmitted to longer term rates that form the benchmark for corporate borrowing and investment decisions. Excessive long term rates exacerbate the collapse of investments in the economy”

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