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Credit growth, lowest in 58 years with more than a third growth in last fortnight

Bank credit growth in FY’20 touched a 58 year- low at 6.1 per cent as expected. But nearly 40 per cent of this growth was in the last fortnight of the fiscal ending March 27- the Covid-19 lockdown period, during which loans rose by Rs 2.3 lakh crore, possibly to help firms to tide over the crisis.

After recording a very tepid growth on the back of weak demand throughout the year, bank loans surged rapidly in the last three fortnight to end the financial year at 6.1 per cent growth with outstanding bank credit at Rs 107.3 lakh crore as of end March 27. This is the lowest growth in 58 years and even lower than 7.2 per cent credit growth estimated by the professional forecasters.

Significantly about 2.3 per cent growth of the 6.1 per cent for FY’20 was only in the last fortnight ending March 27 during which bank lent Rs 2.3 lakh crore. The trend toward strong retail growth until February is likely to have reversed in March as banks are likely to have lent more to firms to tide over the crisis created by the COVID lock down. “We believe that banks have extended substantial amount of credit in the last 7-days of the year ended March 2020 that includes both term loan and working capital loan with companies bracing to tide over the COVID crisis” said S K Ghosh, group chief economic advisor, State Bank of India, in a recent report. ” There may be however a decline in credit to retail sector with increasing restriction of travel, deferring of home, auto buying etc”

Besides, in order to help lower the cost of credit, RBI infused durable liquidity worth more than a Rs 1 lakh crore towards end of the fiscal as crisis in the financial markets deepened. “With a view to reinforcing monetary transmission and augmenting credit flows to productive sectors, the Reserve Bank conducted five long term repo operations (LTRO) at fixed repo rate (one of one-year and four of three-year tenors) between February 17 and March 18, 2020, which infused durable liquidity amounting to Rs 1.25 lakh crore into the system with additional Rs 75,000 crore in the pipeline” the Reserve Bank said in its latest monetary policy report. “The LTROs provided banks with durable liquidity at reasonable cost (fixed repo rate) relative to prevailing market rates”

In its assessment for the current year, RBI said that credit growth is likely to remain modest, reflecting weak demand and risk aversion.

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