Rising interest rates to buckle inflation may have made borrowing costlier, but that hasn’t affected the demand for loans in India, indicating consistent economic activity. Bank credit growth had increased to 17.94 per cent for early October, as industrial activity went up by 3 per cent for September. In the light of these developments, Reserve Bank of India’s Governor Shaktikanta Das will be meeting banking heads to see if India can sustain its double digit credit growth.
Deposits 50 per cent of borrowing
According to a report by Times of India, the bosses at public sector banks have received a note, according to which the issue of higher borrowing even as deposits go down, might be up for discussion. The credit growth in India reached record highs because the loan demand defied interest rate hikes by the RBI, thanks to pent up demand from the pandemic. But cash hasn’t been flowing into the banking system at the same rate, as deposits stand at 9.5 per cent, almost 50 per cent of the credit growth which is 18 per cent.
More pressure on liquidity ahead
As cashflow in the country is further set to get affected by RBI’s sale of dollars for strengthening the Rupee, the banking regulator wants to see if banks can continue to support loan demand, and sustain credit growth in the longer run. The meeting comes after the RBI had to explain to the government, why it wasn’t able to contain consumer inflation below the 6 per cent mark as required by law, for nine months in a row. The inflation for October did dip below 7 per cent as Shaktikanta had mentioned earlier.
Alongside double digit credit growth, bad loans or NPAs in India have also been falling, and Crisil has predicted that it will fall below 5 per cent by March 2023, and to the lowest level in a decade by 2024.
